The selection of a mortgage program can be rather complicated, and we highly recommend that a mortgage counselor help you with the decision process. There are many loan products available in the marketplace today, and the guidelines for these products change continually. A mortgage counselor that stays current on these programs can play a valuable role in analyzing your options.

Here are a few items you need to consider before selecting a program:

As stated earlier, there are a number of mortgage products available. The most common types are the fixed-rate programs where the monthly interest and principal payments are fixed for the life of the loan. Other programs, referred to as ‘adjustable-rate’ loans, allow for the interest rate to change at specified intervals. The interest rate on adjustable-rate loans can go up or down depending on changes to the index interest rate on which the loan’s interest rate is based. Some adjustable-rate loans allow for a fixed period, such as one, three or five years, before the interest rate becomes adjustable. After that fixed period, the interest rate will change each year thereafter.

Another program for specific needs is called a “balloon” mortgage. Balloon programs are ideal for borrowers who know they will not occupy the home for long periods of time. For example, the borrower may know that he or she will be transferred to another location in three years, and will likely sell the home and pay off the loan anyway. Since balloon loans usually have shorter terms (usually five to seven years) than a typical fifteen or thirty-year loan, the interest rate is often more favorable than that on a fifteen or thirty-year loan. A balloon mortgage usually offers many of the features of a fixed-rate loan, such as a conversion option to a longer-term loan in the event that your plans change unexpectedly. A balloon mortgage may be a fairly attractive financing vehicle if you are comfortable with the lump-sum payment that will be due at the end of the term. Still, there are many options and features that you should fully understand before selecting this type of program. Please talk to your mortgage counselor before selecting any of these special programs.