Solutions for a Changing Market
Concerns of rising interest rates seem to be the talk of the town these days, and may leave some homebuyers wondering if they'll be able to afford their dream home.
To keep payments low, they may want to consider an alternative program, such as an adjustable rate mortgage (ARM) that takes advantage of low initial rates. Alternative programs often allow buyers to purchase properties that are more expensive, and/or reduce their monthly mortgage payment. They may also be the solution for those who plan to move again within five to seven years.
Here are some alternatives to fixed rate mortgages that may work for your buyers:
The Interest-Only Mortgage
Choosing an interest only mortgage may reduce the monthly payment, increase tax savings and help control cash flow. For example, Fannie Mae's InterestFirst loan offers interest only payments (containing no principal) for the first half of the mortgage term, making payments considerably lower than those on a comparable fixed rate loan. The monthly payment would adjust during the second half of the term (in year 16) to cover principal and interest for the remaining term. Plus, borrowers may make optional principal payments at any time, which would lower their monthly interest only payment.
The Adjustable Rate Mortgage
Adjustable Rate Mortgages (ARMs) are still appealing because of their low starting rates. Even though borrowers are not locking in a fixed rate, today's lifetime and periodic caps make the chances of rising rates significantly a smaller concern. Many buyers choose hybrid ARMs, which keep rates fixed for the first three, five or seven years.
The Balloon Mortgage
Balloon Mortgages are calculated on a longer term (15-30 years), with the agreement that the mortgage be paid in full with a balloon payment at the end of a predetermined period, generally 5 to 7 years. The advantage of this loan is that interest rates are generally set below current market rates. In principle, the balloon payment forces payment of a large amount within a short time. Many balloon mortgage borrowers, however, refinance their loan before the balloon payment is due.
These are just a few examples of the loan programs that may help you outsmart the market. Please contact Nate Ellis your GMAC Mortgage representative to learn more. 888-808-NATE (6283)
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