Vol 6 No. 25 - March 15, 2006

Home mortages come in many forms
By Louise Bolger

Today is the Ides of March, but don’t be afraid. Even though this date has forever had a sense of foreboding associated with it, the Ides was really just the standard way the ancient Romans would refer to the 15th of the month.

Its reputation became blemished when poor old Julius Caesar was assassinated on March 15, 44 B.C. If he had listen to the mad soothsayer before going into the Roman Senate, the course of history might have been changed.

The course of your financial history might also change if you pay closer attention the next time you are financing residential property. Surveys have concluded that 52 percent of homeowners don’t know much about the mortgage options that were available when they bought their homes.

The two pieces of advice veteran homeowners would give to prospective home buyers is to figure out how much house they could afford and to research all the various mortgage options available. But the most important thing a potential homeowner can do is to get pre-approved by a reputable lender who will provide you with a pre-approval letter.

Buyers need to be very careful when choosing a home mortgage product. Low down payments (as low as zero for first time buyers), negative amortization mortgages, interest only mortgages and adjustable rates mortgages can all be a little scary to the novice. In an effort to keep monthly payments lower and qualifying parameters higher, buyers are attracted to some of these more aggressive mortgage products.. However, if interest rates start going up, it’s possible to end up with higher rates than if you had locked into a conventional mortgage initially.

It’s even scarier if you have an interest only or negative amortization mortgage and home values start to slide even a little. Negative amortization actually adds principal and interest back on to the outstanding debt, and homeowners could be looking at an outstanding mortgage higher than the value of their home. In fact, federal regulators are carefully looking into negative amortization mortgagers and may start placing additional restrictions on these loans.

Just to complicate the market even further, as 40-year mortgages are becoming more and more popular, 50-year loans are waiting just offstage to make their appearance. So far, Fannie Mae has not indicated that it will consider 50-year mortgages, even though it plans on expanding its purchase of 40-year mortgages making them available to additional lenders.

The good news for buyers is that, at the time of this writing, mortgage rates were still hovering around 6 percent, and according to the fourth quarter reports, appreciation rates are still up. But the statistics also state the number of properties sold were way down in the fourth quarter, indicating a possible price downturn when the first quarter numbers are compiled and released.

As far as second home financing, you still have the same range of options available as on a primary residence, however, expect to pay higher rates and put down additional funds. Second home financing is considered to be more of a risk for the lender, especially when the buyer wants to keep monthly payments down in order to qualify for two mortgages.
The bottom line is learn as much as you can in order to make an informed decision about the right mortgage product for you. It’s the mortgage maze you need to be aware of, not the Ides of March.

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