SEE -< Hints For Homebuyers From The Federal Reserve Board Making Sense Of Innovative Mortgages (NAPSA)—New kinds of mortgages are making it possible for some consumers to become homeowners for the first time. However, these mortgages come with risks. Traditional mortgages require that each month you pay back some of the money you borrowed (the principal) plus the interest on TCSegCF ole eee Payment-Option ARMs— that money. The principal you owe on your mortgage decreases over the term of the loan. In contrast, what’s knownas an interest-only or I-O payment plan allows you to pay only the interest for a specified number of years. After that, you must repay both the principal and the interest. Most mortgages that offer an I-O payment plan have adjustable interest rates. Having an adjustable-rate mortgage, or ARM, means that the interest rate and monthly payment will change over the term of the loan. Whenthe I-O period ends, your payments could go up a lot—by 50 percent or more. Another innovation in mortgages 1S a payment-option ARM. This is an ARM that allows you to choose among several payment options each month. The options typically include a traditional pay- ment of principal and interest, an interest-only payment or a minimum (limited) payment. The risk with making mini- mum paymentsis that you will be adding to the amount you owe. Your future payments could double or even triple. However, an I-O mortgage payment or a payment-option ARM might be right for you if you have irregular income—such as com- AENeS heamere An interest-only payment plan allows you to pay only the interest for a specified number of years. missions or seasonal earnings— and wantthe flexibility of making I-O or payment-option ARM minimum payments during low-income periods and larger payments during higher-incomeperiods. Interest-only or option ARM minimum payments may be risky if you won't be able to afford the higher monthly payments in the future. If you are not sure that an I-O mortgage payment or a payment- option ARM makessensefor you, there are several other alternatives you could consider. For instance, find out if you qualify for a community housing program that offers lower interest rates or reduced fees for first-time homebuyers, making homeownership more affordable. To learn more, visit the Web site at www.federalreserve.gov.
