Daily Real Estate News December 12, 20064
Exotic Mortgages Growing in Popularity
While the 30-year, fixed rate mortgage is still the most popular for prime borrowers, many are exploring a host of other possibilities. Some of the slightly more exotic are:
2/28 and 3/27 ARMS. The rate is fixed for two years and then adjusts higher each remaining year based on an underlying interest rate index. Subprime loan rates vary more than prime rates but most are now near 8 percent.
Interest-only loans. Mortgages that allow the home buyer to pay only the interest on a loan, typically for a period of three to 10 years before the principal is amortized. The loan may cut monthly payments on a $200,000 loan by almost $200 a month based on current interest rates.
80/20 loans. Two mortgages in one loan that finances 80 percent of the house and another "piggyback" loan that covers up to 20 percent, depending on the down payment. A new tax law recently passed that gives a deduction for mortgage insurance makes this less attractive.
Payment-option ARM. Mortgages that give the home buyer a variety of payment options each month. They've been a lightning rod for criticism because they allow the home buyer to raise the balance of their loan — called negative amortization — by skipping payments of principal and part of the interest for a limited time.
Source: Reuters, Al Yoon (12/11/2006)
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