31 July 2006

Fifty Years to Leave Your Mortgage

You want the lowest possible mortgage payment, but you don't want to be upside down in your home loan. A mortgage payment at 1% with deferred interest is attractive for a few reasons, yet it carries a huge amount of risk if it is not understood or used properly.
50-year loans, as a short-term solution, address people whose credit scores are too low to qualify for interest only, but are still in need of a low mortgage payment. Typically, that includes people whose credit scores are in the range of 500-579. This segment represents approximately 13% of the U.S. population.

By choosing the longest term possible for a mortgage payoff period, the homeowner can reduce the monthly payments to the lowest level possible while working to improve their credit score. Once the credit is above 580, the client can remortgage into a more appropriate (and lower interest rate) mortgage that better matches their long-term financial goals.It has a higher rate than an interest only mortgage because -- again -- there aren't as many buyers for the product on Wall Street. The only way to entice investors to buy the loans is to offer a higher rate of return, etc.

More info here.


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