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Interest Only Mortgage - Labeling a mortgage as in most cases, is a misnomer. These loans are usually not really a loan in which the borrower only pays the interest and nothing more. ; loans normally have a provision to let the borrower make an interest payment(s) at a specified time(s). There are some of these loans that let the borrower make only interest payments for the life of the loan and then require a balloon payment of the original loan amount at the end of the payment schedule. This type of mortgage is not a good option for most borrowers.


Adjustable-Rate Mortgage - There are many pitfalls to these types of home loans. With this loan the borrower does not know what the monthly house payment will be in the future. If interest rates go down the payment will go down but if rates go up so does the payment. As it is impossible to gauge what interest rates will do over the life of a 30 year mortgage this is quite a gamble.

Just one example - A home bought for $300,000.00 on an ARM with a starting interest rate of 4% will have payments of about $1,432.25 per month to cover principal and interest. If the interest rate adjusted to 6.5% the payment would go up to $1,896.20 and if interest went to 9% that payment would jump to $2,413.86. Not many people can afford a $1,000.00 a month jump in house payments so be cautious of ARMs.


FHA 203K Program - When a borrower wants to purchase a house that needs repairs or modernization he/she will usually have to obtain financing first to purchase the home and then additional financing to do the repairs. They will then have to obtain a permanent mortgage when the work is completed to pay off the interim financing. Often this financing, the purchase and repair loans, can involve relatively high interest rates and short payoff periods.


The FHA 203(k) program was made to address this situation. The borrower can get one mortgage, at a long-term and competitive fixed rate, to finance both the purchase and rehabilitation of the property. To provide funds for the repairs, the mortgage amount is based on the projected value of the property with the repairs done and taking into consideration the cost of the work. This is a great program if the buyers are buying a Fixer-Upper”, they want to make any special needs renovations or any other repairs or upgrades that the buyer requires or desires.