Financial Vitality

By Peter Fenderson

“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it rains.” —Robert Frost

While interest rates are at record lows, the time has never been better to purchase a new home or refinance the mortgage on an existing home. So what kinds of mortgages are available these days? How does one find the best mortgage out there? The process is not difficult, but it does require homework. First, determine exactly why a new mortgage would benefit you. Second, gather all the information you can regarding the type of mortgage you want and finally, meditate and pray on your decision to move forward. If your decision is the right one, doors will start to open.

Neither a Borrower nor a Lender Be

When I trained as a fledgling loan officer at a national bank several years ago, I remember one of the senior officers describing how incredibly high interest rates had been in the early and mid 1970’s. At that time, double-digit interest rates made paying for a new home virtually impossible for anyone with just an average income. But today, rates have never been lower and owning one’s own home is no longer an American dream, for most, it’s an American reality.

In Shakespeare’s Hamlet, Polonius advises his son to “neither a borrower or lender be. “Easy for him to say, he probably didn’t work as a mortgage banker or have a thirty year note on his house.” Its true, taking on a lot of debt can be a scary proposition, especially if you plan to purchase a large home or buy in an exclusive neighborhood, but try eliminating fear through simple planning.

The American Dream

Whether you live in an exclusive neighborhood or just think that you do, having a decent mortgage is every American’s right under the Housing and Urban Development Act of 1965. HUD's mission is to increase homeownership, support community development and increase access to affordable housing, free from discrimination.

With that in mind, the government offers a number of different VA, FHA loans, as well as so-called “HUD Homes,” rebuilt properties offered at affordable prices to qualifying families. But what if you aren’t a veteran and your income is average or better than average? Well, you may still qualify for a low interest FHA loan. Find out if you qualify by contacting an experienced, fair lender that you trust, and in the meantime gather more information on government housing and loan programs at www.www.hud.gov.

But what if you have an average credit and income, what kind of loans are available to the average home buyer or to the person who wants to refinance their existing mortgage? Here are just a few:

Fixed Rate
If you want to protect your mortgage from potential future increases in interest rates then apply for a fixed rate mortgage. These mortgages guarantee the rate of interest you will pay for a certain period of time, generally fifteen or thirty years with thirty years being the standard. Your payment is fixed for the entire term of the loan.

Variable rate
Often times you can get a lower interest rate if you opt for a variable rate mortgage. These loans are great if you only plan on living in the house for a year or two. With a two-year fixed rate/twenty eight year variable rate loan for example, the payment is fixed for the first twenty-four months and then makes a slight adjustment at month twenty five, depending on what rates are doing at that time. One-year, three-year, five-year and seven-year fixed rate loans are also available. And the rate doesn't always increase either, this means that when interest rates fall, you could benefit, but when interest rates rise, you may have to pay more.

Interest-only
These mortgages carry a lower monthly payment than a conventional fixed rate or variable rate mortgage. You only make an interest payment on the loan each month, the original sum borrowed doesn’t have to be paid off until the very end of the mortgage term. These are great loans if you plan to be in the house a long time. The equity, or cash value, you build up in the home could be equal to or greater than the value of the property at the end of the thirty year term these loans often carry. But either way, money has to be available to pay off the loan at the end of the term. A separate investment savings plan can be set up for this, but keep in mind you can’t guarantee that the savings plan you invest in will grow enough to pay off the full amount of the loan. At the end of the term you may have to sell or refinance again in order to make up the difference. Of course, by that time you may be ready to move to Florida or Arizona anyway.

Home is Where The Heart Is

Ultimately, any decision you make about buying a new home or refinancing your current mortgage will require planning. Purchasing and maintaining a happy and healthy home for you and your family isn’t something one rushes into. Always consult the people you love and trust the most before signing anything. And remember, in the State of Michigan there is always a three-day right of rescission afforded on any real estate contract you sign. This “cooling off” period, as it’s called, allows you and your partner to carefully study everything you’ve signed and meditate on whether you’ve made the right decision or not.

Peter Fenderson, MA, is a Detroit-based mortgage banker and freelance writer. Contact Peter at 800-351-8337 or e-mail at pfenderson@att.net.

Resources:
United States Department of Housing and Urban Development 1-800-333-4636 or visit them on the web at www.hud.gov.