Beat Rising Rates With Nontraditional Mortgage (NAPSA)—Whetherit’s a dream home, vacation property or retirement condo, consumersface a housing market this year in which climbing interest rates are driving up the costs of buying a home. Shopping for—and financing— an affordable home has become an increasingly daunting process in many frenzied markets. The median national home price now hovers around $224,000, but prices in hot areas often soar well above. To address this dilemma, mortgage lenders have introduced a new crop of “affordability” loans, and homebuyers are turning to them as a means to comfortably manage their home financing over the long run. These nontraditional loan products are designed to create a reasonable monthly payment and eliminate dreaded rate increases and “pocketbook shock” from paymentresets. In fact, according to Opteum Financial Services, one of the nation’s fastest-growing residential lenders, “affordability” mortgages—such as fixed-rate interest-only products, longer-term (40-year) fixed-rate mortgages and 80-20 loans—are exploding in demand. A few years ago, fixedrate interest-only mortgages barely existed. According to another financial services firm, UBSAG,these loans now account for around 8 percent of all new residential mortgages taken out in the U.S., and they’re growing each month. Here are some major trends to watch: Long-Term, Fixed-Rate Interest-Only Loans Interest-only (IO) loans have received the most headlines in recent years, but as interest rates creep upward, many consumers— “AFFORDABILITY” MORTGAGES, such as fixed-rate interest-only products, are exploding in demand. includingfirst-time homebuyers— are shying away from short-term IO loans in favor of longer-term fixed-rate [Os to avoid upward payment adjustments. John Palmiotto, senior vice president for Opteum, says, “Since the average American keeps a mortgage for less than 10 years, fixed-rate IO loans can often help homeownersleverage their buying power in the beginning. After 10 years, when the loan fully amortizes, the assumption is that the borrower’s income will also have grown and thus can comfortably absorb the remaining principal portion of the payment.” Momentum of40-year Loans While 30-year fixed mortgages have been the “blue-chip” standard, 40-year fixed-rate balloon loans are now gaining major popularity. The appeal is that these loans offer a “happy medium”payment nearly halfway between an interest-only loan and a 30-year fixed. The drawbackis its long payback term of 40 years. The best approach for buyersis to work with their loan officer to educate themselves about the variety of product offerings out there that not only managetheir cash flow but that will also be the best choice for their personal financial situation.
