FIND LOAN OPTIONS THAT WORK FOR YOU - Citizens Bank

Find Loan Options That Work For You

Okay, you have a realistic budget and know what you can afford in a home. You've determined what you really need in a home. You've talked to several lenders. You even have an eye on a neighborhood or a certain home. It's time to start considering the pros and cons of different types of loans as they apply to your needs. It's time to shop. Not long ago, there was only one kind of mortgage: 30-year fixed-rate (the borrower has 30 years to pay back the mortgage, and the interest rate is fixed when the mortgage is closed, and the monthly payments remain the same over the life of the loan). While it is still the most common home loan, there are now several other kinds of mortgages that may better fit your situation. Again, your lender is the best person to help you explore your options, but here is a brief overview of common choices.

Loan Type

Advantages

Disadvantages

Fixed-rate mortgages

30-year fixed

15-year fixed

Bi-weekly Adjustable Rate (ARM)

Lower monthly payment. More cash/savings because payment is lower. Easier to bear if the homeowner has repairs to make or comes upon hard times. Extra cash allows homeowner to make other investments since cash isn't tied up in the mortgage.

Shorter term, so you own your home in half the time (allows you to own your home before your children start college or before you reach retirement). Often the total interest paid over the life of the loan is lower (less than half the total interest of a 30 yr.).

Loan is paid off much more quickly. Interest savings is significant.

Often automatically deducted from your checking account.

When interest rates go down, payment goes down. Initial interest rate can be as much as 2 to 3 percent lower than a comparable fixed rate mortgage. Homeownership is more affordable. Qualifying is easier. Lower initial interest rate compared to fixed-rate mortgages, which can make homeownership more affordable and make qualifying for a mortgage easier. And if interest rates decline, your mortgage payments decline as well.

Most affordable. Longer term. Pay more interest. Costs more than shorter term mortgages over the life of the loan.

Bigger monthly payment. Qualification may be difficult because the income requirement is higher.

Must be able to budget and make the half-mortgage payment every two weeks.

When interest rates go up, payments go up. The potential for higher monthly payments if interest rates increase. Requires more budgeting discipline.

Convertible

Mortgages

Hybrid and Convertible ARMs Step

Advantages of an ARM with the ability to convert to a fixed-rate mortgage at a certain point during the term.

Interest-only Loan Two-

Allows you to get a bigger loan and more house. Good for homebuyers who receive the bulk of their income in bonuses. Good for people who expect to increase their income quickly.

Low/No Document

Designed for those who have trouble verifying all of their income such as self-employed borrowers, commissioned professionals, or service industry professionals (e.g.; bartenders, waitresses, hair stylists). Lender does not require proof of income and assets. No qualifying ratios (debt to income, housing to income).

If you don't convert, it's a regular ARM. If interest rates are at a higher level when its time to convert, you may not want to go with it.

Must budget wisely and make lump sum payments, steering clear of using that money for other purposes. At end of the fixed period, you must refinance, pay a lump sum, or start paying on the principal. If house doesn't appreciate, you may owe money when selling. When paying only the interest, the principal does not decrease and you do not build equity, unless the home appreciates in value.

Higher interest rate because of higher risk. Bigger down payment required. Higher credit standards.

Loan Type

Advantages

Disadvantages

Two-Step Mortgage

Balloon Mortgage

May be a good choice for homebuyers who don't expect to own their home past the maturity date when the balloon payment is due. Short-term loan (usually 7 years). Payments are usually lower than conventional fixed loans. Good choice if home is expected to appreciate.

Reverse Mortgage

Buy-down Mortgage

Increases the income of retired or elderly borrowers. Designed to help seniors use equity in their home without selling or moving. No monthly payment

lower payments High up-front cost to get lower interest rate

At the end of balloon term, you must sell your house or refinance because a giant payment is due. If you need to refinance, interest rates may be much higher than when you got the balloon loan. You may end up owing money to the lender if the house doesn't appreciate and you must sell because you do not qualify for a refinance.

Loan must be repaid if the borrower sells, moves, or dies.

Sales price of home may increase beyond appraised value

Special mortgages

FHA Mortgage

Typically lower down payment requirements. More generous credit qualifying criteria. Assumable. Easy to refinance.

VA Mortgage

Designed for U.S. military veterans. Not open to everyone. A down payment may not be required. Underwriting guidelines are not as strict as conventional loans.

Closing costs are higher. Sometimes interest rates are higher. Fewer mortgage options. Loan size restrictions.

Processing may take longer than for conventional loans.

Copyright 2004 Mortgage Bankers Association. Information provided with the permission of Mortgage Bankers Association. For more information please visit .

Equal Housing Lender

Mortgages are offered and originated by RBS Citizens, N.A. Citizens Bank is a brand name for RBS Citizens, N.A. and Citizens Bank of Pennsylvania. RBS Citizens, N.A. and Citizens Bank of Pennsylvania are affiliates. All loans are subject to individual approval.

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