Try a 50-year mortgage

Those struggling to afford a home may be wondering how long their mortgage payments can be stretched out.

The new answer: a half-century.

A handful of lenders have begun offering 50-year adjustable-rate loans to buyers who need to keep payments low in the face of record home prices and rising rates.

Most big banks already offer 40-year mortgages, which account for about 5% of all home loans, according to LoanPerformance, a real estate data firm. So far, only a few small lenders have rolled out the five-decades-long mortgages.

“One of the biggest things in California is the high costs of homes,” says Alex Diaz Jr. of Statewide Bancorp in Rancho Cucamonga, Calif. “And with rates going up, there’s demand from customers (for) longer loans.”

Statewide, which introduced its 50-year loan in March, has received about 220 applications, Diaz says.

For cash-squeezed buyers, the longer-term loans are another option. In California, only 14% of people could afford a median-priced home in December, when the median was $548,430, if they had to put down 20%, the California Association of Realtors found.

The 50-year mortgage also signals that the cooling real estate market is heating up competition among lenders.

“Mortgage lenders are getting craftier to get the attention of consumers,” says Anthony Hsieh, CEO of LendingTree. But, he says, “The consumer needs to slow down and understand the product.”

Two issues to keep in mind: A borrower with a 50-year mortgage builds equity very slowly. And because rates on the loans are adjustable, borrower’s monthly payments could rise.

Still, the 50-year isn’t considered as risky as an interest-only loan or a mortgage that lets borrowers pay even less than the interest.

With those loans, a borrower might not build any equity and could end up owing more than a home is worth - called negative amortization.

That’s why Anthony Sanchez applied for the 50-year loan to refinance his California home. “I looked at a lot of different options,” says Sanchez, 30. “I didn’t want to be tempted with negative amortization.”

Mortgage experts caution that the 50-year mortgage is best-suited for those who plan to stay in their home for about five years, while the loan’s interest rate remains fixed.

“If you’re going to be there more than five years, you’re gambling,” says Marc Savitt of the consumer protection committee for the National Association of Mortgage Brokers. “You don’t know what interest rates are going to be. I wouldn’t do it.”

By Noelle Knox and Mindy Fetterman, USA TODAY

This entry was posted on Thursday, May 11th, 2006 and is filed under Home Loans, Home Mortgages, Mortgage Refinance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
« Top 5 Tips to Prevent Credit Card Fraud
The Bills Can Wait »

Leave a Reply

Sponsors

 

August 2008
S M T W T F S
« Jul    
 12
3456789
10111213141516
17181920212223
24252627282930
31  

How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.