You’ve probably heard of the interest only loan for homeowners trying to stretch their dollar. Now, in California, the 50-year home mortgage is putting people in traditionally amortized loans for approximately the same monthly payment.
Some industry experts think the 50-year mortgage is reaction to the rising interest rates and the extremely high level of property values in California.
What the loans do for consumers is allow them to avoid the interest only loan, and actually build some equity.
Californians using interest only loans to keep payments down while equity builds is no secret inside the world of purchasing property. For some homeowners the interest only loan is their only way of affording a home in the area. CNN.Com quotes mortgage CEO Anthony Hsieh as saying "Mortgage lenders are getting craftier to get the attention of consumers.” He says two things to keep in mind is 50-year mortgages build equity very slowly, and with the adjustable rates, the monthly payments could rise.
Keep in mind, interest only loans only offer interest only payments for a specified time period, and the interest rate adjusts with prime. When the 3-10 year period is complete, the loan usually converts to a traditional loan refinancing 100% of the original principal.
The 50 year mortgage benefits the homeowner in three ways: 1.The homeowner could refinance when an interest only loan is about the convert, providing relief from an adjustable rate, 2. The homeowner avoids an interest only loan and actually builds equity, and 3. A homeowner banks on the same monthly payment each and every month, without worry of the Adjustable Rate Mortgage.
But if you’re trying to avoid selling your home think of this, some mortgage experts think the 50-year mortgage fits those who plan to stay in their homes for five years or less, while the loan’s interest rate is fixed.
"If you're going to be there for more than five years, you're gambling," Marc Savitt of the consumer protection committee for the National Association of Mortgage Brokers told a local newspaper. "You don't know what interest rates are going to be. I wouldn't do it."
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