Which Loan is Right for Me?

If you’re considering buying a home using a loan, you might not know where to start your research. These helpful charts break down the type of loan that best suits your situation and the benefits and disadvantages of each option. 

Years you plan to stay in the home Recommended program 
1-3 years 3/1 ARM, 1 year ARM or 6 month ARM 
3-5 years 5/1 ARM 
5-7 years 7/1 ARM 
7-10 years 10/1 ARM, 30 year fixed or 15 year fixed 
10+ years 30 year fixed or 15 year fixed 
Loan Program Advantages Disadvantages 
Fixed Rate Mortgages 30 year fixed 15 year fixed Monthly payments are fixed over the life of the loan Interest rate does not change Protected if rates go up Can refinance if rates go down Higher interest rate Higher mortgage payments Rate does not drop if interest rates improve 
Loan Program Advantages Disadvantages 
Adjustable Rate Mortgages (ARM) 10/1 ARM 7/1 ARM 5/1 ARM 3/1 ARM 1 year ARM 6 month ARM 1 month ARM Lower initial monthly payment Rates and payments may go down if rates improve May qualify for higher loan amounts 30 year term, no balloon payment More risk Payments may change over time Potential for higher payments if rates increase 
Loan Program Advantages Disadvantages 
Balloon Mortgages 7 year 5 year Lower initial monthly payment Lower payment for a predetermined period of time Many balloon mortgages offer the option to convert to a new loan after the initial term Risk of rates being higher at the end of the initial fixed period Risk of foreclosure if you cannot make balloon payment, refinance, or exercise the conversion option Balloon payment requires you to sell or refinance after the term, as opposed to a 7/1 or 5/1 program with a 30 year term 
Loan Program Advantages Disadvantages 
First Time Buyer Programs Lower down payment Easier to qualify Lower rates may be available May be subject to income and property value limitations Some government subsidized programs may generate a recapture tax if you sell the house too soon Education courses may be required to qualify for these loans 
Loan Program Advantages Disadvantages 
Stated Income Programs Don’t need to verify income Faster approval Good for borrowers who may not qualify with a full income documentation program Higher rates Higher down payment 
Loan Program Advantages Disadvantages 
Interest Only Programs You have several payment options Lower monthly payments Qualify for a higher loan amount Qualify at the interest only payment Option to pay the full normal payment Interest only payments for up to ten years Higher rates Principal loan balance will not decrease during the interest only payment period Payment will be higher for the remaining term 
Loan Program Advantages Disadvantages 
No point, No fee Programs No out-of-pocket loan costs at closing Closing costs are paid from the lender rebate Less money required to close Refinance without increasing your loan amount Higher rates Higher payments Some lenders may have a short payoff penalty which is usually charged to the loan broker, but may be passed on to you Some require a prepayment penalty for the first one to five years 
Loan Program Advantages Disadvantages 
Imperfect Credit Programs Potential for reestablishing credit if you pay your mortgage on time When used for debt consolidation, you may be able to reduce your monthly debt payment Higher rates Terms may not be as favorable Harder to get long-term fixed loans Loans may have prepayment penalties 
Loan Program Advantages Disadvantages 
Home Equity Line of Credit You only borrow what you need Pay interest only on what you borrow Flexible access to funds Interest may be tax deductible May be free of closing costs A good source for an emergency fund, if set up in advance Can be used for debt consolidation and lower payments Rates are usually lower than consumer loan or credit card rates Rates can change. The maximum interest rate can be relatively high Payments can change Harder to refinance your first mortgage 
Loan Program Advantages Disadvantages 
Home Equity Fixed Loan Fixed payments Interest may be tax deductible Get cash out for any purpose Higher interest rates compared to first mortgage Harder to refinance your first mortgage Interest is paid on the entire loan amount, compared to an equity line of credit 

In addition to standard loan programs, you may benefit by obtaining a special program: 

  • Purchase your home with no down payment using Private Mortgage Insurance (PMI) or Lender-paid Mortgage Insurance (MI). 
  • Piggyback loans: 80-10-10 or 80-15-5. Avoid PMI payments by using Lender-paid MI. 
  • Debt consolidation programs. 
  • Home Improvement loans. 
  • You may qualify even if you’ve been turned down before! 

Why Banks Will Adopt Zelle as Their Mobile Banking Platform

Simply put, and to save you time scanning the article for the answer, the reason big banks will adopt Zelle instead of Venmo is because they developed and own Zelle. Paypal owns Braintree, that owns Venmo. Paypal and Zelle are from the same mindset of decentralizing banks and removing them from the middle of the transaction. In essence, both PayPal and Venmo are making the same statement, though it’s not as loud these days as most of us have adopted their platforms without necessarily taking a political stance for years, which is that the way most financial transactions, from large stock purchases to mortgages all the way down to small ATM withdrawals go through big banks. Those big banks control the market on pricing, and it isn’t cheap. They hold much of the world’s wealth, cheated many out of their savings in multiple financial scandals, and pull tons of dollars out of the world economy without adding a single physical detail of their existence to the world, besides the actual banks themselves, which very few people even step foot in these days.

When PayPal, and all its various competitors came along, the first reaction was to ignore it. It is a small thing, unlikely to amount to much, as this internet thing is a fad. Then it was to fight it. Not let traditional banking interact with these platforms. Soon after that, the smaller banks got wise and started playing ball, after all this money had to originate from somewhere, and then all other banks fell in line eventually. PayPal was used to transfer money for small transactions, but it wasn’t replacing the mortgage or bonds or futures. All was well and good. PayPal just allowed people to transfer dollars to each other and a decent amount of ecommerce, but money was still moving through the banks all the same.

Then came Apple Pay. Now credit cards, many of them underwritten by large banks, were being cut out of some transactions. Not even that many, all things considered, but enough to show the big banks that these nicks and cuts could lead to a lot down the road if they didn’t get into the game.

Venmo had been out there for a while as well, and money was floating around without a home, person to person, and into Apple accounts, growing stronger in familiarity, making cash less necessary, banks less necessary—except in origination—and it was easy to see that it wouldn’t be long before paychecks were deposited straight into Venmo accounts, landlords and mortgage companies would be accepting Venmo payments, as well as restaurants, gyms, grocery stores, mechanics, coffee shops, on down the road until future generations not only never stepped inside a bank but they would seem like payphones to them: only something to ironically take a photo in front of and laugh at.

So now we have Zelle. It doesn’t have a big user-base yet, but it will. It will be aimed at older millennials and younger Gen X. Basically, those young enough to understand, but thus far resistant to Venmo for what their reasons. You will see it show up in small local banks like Rhinebeck Bank in Hudson Valley New York. It is owned by the banks Bank of America, BB&T, Capital One, JPMorgan Chase, PNC Bank, US Bank, Citibank and Wells Fargo , and while they are VERY out of touch with what people want or need, they have so much leverage and financial real estate that it will be a force to be dealt with and will have a lot of market share no matter where the market turns.

In this world of intertia loyalty, where we remain loyal to companies and brands mainly because it is seemingly such a heavy lift to change—especially change something where so many accounts are tied in—our view is to pick the winning horse, for better or worse. Going with Zelle may save you a lot of time in the long run. Hopefully, the rest of the world can force the market to make these transactions free for as long as possible.

How to Save Money on a New Home Mortgage

There are countless tips and strategies on how to reduce your monthly mortgage payments, but comparatively few on how to save money on a new mortgage when buying a home. Too many home buyers don’t even know about some of these options, much less give them serious consideration when finalizing the details of the mortgage with their home lender.


Buying Points on the Mortgage

There are two different kinds of “points” that people buy: origination points and discount points. Origination points offset the lender’s cost of processing the loan in exchange for a lower interest rate. Discount points is even simpler in that you’re making a one-time upfront payment to lower the interest rate on the loan. Often, the type of points you’re buying depends on the standard or default loan terms offered by the lender. Some lenders like to market a no closing-cost mortgage but then also offer the option to buy discount points when the borrower realizes lower interest rates are available to them. Either way, you’re paying more upfront to reduce the overall cost of the loan.

On a related note, due to their specific closing costs and loan terms, different lenders offer more generous terms than others when it comes to buying points. Fortunately, there’s a key metric that simplifies the decision to buy points. Ask the home lender what the breakeven date is for the points you’re considering buying. The longer you plan on staying in the home, the more sense it will make to buy points.


Minimizing and Negotiating Closing Costs

Even apart from covering the origination fees and paying down your interest rate, there are other ways to save money on a home loan by minimizing closing costs. Some of the taxes and governmental fees are unavoidable, but many closing costs are negotiable either directly through the lender or through the third-party vendor. This includes the inspection, survey, appraisal, notary, escrow fees, and title insurance.

When available, the most effective way to lower closing costs is to make an all-cash offer. Not taking out a mortgage completely eliminates the underwriting fees and many of the insurance requirements that come with a mortgage. It also makes you a much more attractive buyer to a prospective seller. More real estate investors are also buying properties in cash rather than trying to finance and manage multiple properties, especially as interest rates continue to rise and the cost calculations for taking on additional mortgage debt look less favorable. Similarly, some millennials are getting an edge up on the housing market by using a parent’s home equity to make an all-cash offer. Then, they can work out the mortgage and repayment mechanism after the home is purchased.

As with buying points, many of the most popular strategies for reducing closing costs have trade-offs that you’ll need to be prepared for. Closing at the end of the month will reduce the prepaid interest you’ll need to pay as part of the closing, but it will also reduce the time until your first mortgage payment. It also creates additional logistical stress and hassles as most buyers and lenders are trying to close at the end of the month as well.


Working with Realtors who Offer Real Value

The total real estate commission on a home sale is negotiated between the seller and the seller’s real estate agent. This leaves few options  for the buyer to proactively reduce the commission paid out of the sales price. It also mistakenly creates the impression that there is nothing at all a buyer can do to possibly reduce the traditional commission paid on the home purchase. Whatever the commission on a home sale, it’s typically split between the seller and buyer agents. But the average real esate commission nowadays is hovering around 5 percent, which means a lot of people would say many buyers should have to pay no more than 2.5% of the sales price to their agent.

Many buyer real estate agents are now willing to offer some type of cash rebate based on this type of commission structure. So, if the listing commission set at a full 6 percent by the seller, your agent is willing to refund the half-percent after the deal is closed and the commission fee is received. That said, if you’re looking for something unusual, something special, something that is hard to peg down a fair value for, then having an experienced and savvy realtor on your side can make a big difference. Either way, it’s hard to overstate the importance of finding a realtor who offers real value as part of the process.