CHOOSING THE TYPE OF LOAN

Basic Types of Loans		Which Loan is Best
Average Interest Rate Comparison		Links to Loan Information

BASIC TYPES OF LOANS
30 year fixed	This is the most common type of loan. Payments are fixed for 30 years. The interest rate is normally the highest for this type of loan.
15 year fixed	This loan is amortized over 15 years. It pays off in 15 years. Typically, the payment is about 35% higher. Take the 30 year loan payment and multiply it by 1.35. The main benefit of this type of loan is that the interest rate is approximately 1/2% lower than a 30 year loan. On a $150,000 loan, that savings is $750 annually or about $6,500 over 10 years.
ARM Adjustable Rate Loan	This loan typically starts off with a low interest rate which helps people qualify and starts them out with lower payments. This may be the best type of loan for people who do not plan to stay long in a house
Balloon or Convertible	These loans are fixed for a certain number of years, usually 5 or 7 and then either need to be paid off or refinanced or are converted for the balance of 30 years at the interest rate at the time of conversion.

WHICH LOAN IS BEST?
The primary factor in the determination of what loan is best for your particular situation is the number of years you intend to own the house. The following chart compares four different types of loans with sample interest rates. For example, if you were only going to own a house for 3 years, the 3 year ARM would be the best selection because the average interest rate paid at the end of 3 years would be 4.25%. At 4 years, anything other than the 30 year loan would be workable. At 5 years, the 5 Year Convertible, and at 6-9 years, the 7 year Convertible. Now this example assumes the interest rate goes to 7% in 3 years. The point is that different loans are better depending on the number of years of house ownership.

COMPARISON OF AVERAGE INTEREST RATES FOR DIFFERENT LOANS

TYPE	3 Year ARM		5 Year Convertible		7 Year Convertible		30 Year
YEARS	4.25 %	Average	4.75 %	Average	5 %	Average	5.5 %	Average

1	4.25	4.25	4.75	4.75	5	5.00	5.5	5.5
2	4.25	4.25	4.75	4.75	5	5.00	5.5	5.5
3	4.25	4.25	4.75	4.75	5	5.00	5.5	5.5
4	7	4.94	4.75	4.75	5	5.00	5.5	5.5
5	7	5.35	4.75	4.75	5	5.00	5.5	5.5
6	7	5.63	7	5.13	5	5.00	5.5	5.5
7	7	5.82	7	5.39	5	5.00	5.5	5.5
8	7	5.97	7	5.59	7	5.25	5.5	5.5
9	7	6.08	7	5.75	7	5.44	5.5	5.5
10	7	6.18	7	5.88	7	5.60	5.5	5.5
11	7	6.25	7	5.98	7	5.73	5.5	5.5
12	7	6.31	7	6.06	7	5.83	5.5	5.5
13	7	6.37	7	6.13	7	5.92	5.5	5.5
14	7	6.41	7	6.20	7	6.00	5.5	5.5
15	7	6.45	7	6.25	7	6.07	5.5	5.5