Creative Home Financing

New homeowners these days often feel that getting a mortgage is akin to getting mugged. Soaring interest rates and skyrocketing housing costs mean that fewer and fewer people can qualify for the traditional fixed-interest 30-year loan. As a result, bankers and mortgage brokers are busy devising new financing gimmicks that give more people a chance to buy homes. At the same time the conventional home loan may be on the way out. Says Ronald A. Wilbur, president of the New Hampshire Association of Savings Banks: "The fixed-rate, 30-year mortgage is more than likely a thing of the past." Some of the innovative new financing schemes:

Graduated Payment Mortgages. These plans allow low monthly charges in the early years of the loan and then higher ones later, when the family breadwinner presumably will have a better income. The monthly payment on a $50,000 loan at 12%, for example, might be $396, or $118 lower than normal at the time the mortgage starts, but by the sixth year it would be $568, or $54 higher. These loans have become increasingly popular, but many families may find that their incomes do not rise as fast as their payments. Warns Atlanta Real Estate Broker Alma Fuller: "This kind of mortgage is fine for a doctor just going into practice, but in general it's a very dangerous way to go."

Variable or Renegotiable-Rate Mortgages, Payments under these plans are adjusted periodically to reflect the general level of interest rates in the economy. Under federal rules, the charge can go up or down by only half a percentage point per year up to a maximum of five points over the life of the loan. Many home buyers find such mortgages attractive because they do not want to be tied into a 13% or 14% loan for 30 years--in case interest rates some day fall back to 6% or so. But buyers having variable interest mortgages also run the risk that rising rates will push their loan payments still higher.

Owner Financing. Thousands of frustrated home buyers are now bypassing the bank and borrowing money directly from the person selling the house. Owners often find that this type of financing is the only way they can sell their houses because so many potential buyers cannot qualify for bank loans. The buyer, for example, might borrow half the needed money from the owner at 8% interest and the rest from a bank at 14%.

Shared Appreciation Mortgages. The New York brokerage house of Oppenheimer & Co. has promoted this arrangement, whereby the borrower receives a mortgage rate that is one-third lower than the prevailing level, for example 9% rather than 14%. But the borrower must agree to give the lender one-third of the profits from the eventual sale of the house. Bankers predict that such plans, which are already popular in Florida, will soon become common elsewhere.

All of these methods of creative financing have risks or drawbacks. But one of these plans is often the only way that people are able to own either a dream castle or a one-bedroom condominium.

This file is automatically generated by a robot program, so viewer discretion is required.