Homebuyers considering alternative mortgages in hot market
HOUSTON - National average mortgage rates for a 30-year mortgage have already climbed over 5% since the Fed raised interest rates in March. That and high home prices are leading some homebuyers to consider alternative types of mortgages.
Would you consider an adjustable-rate mortgage? How about a 40-year mortgage?
RELATED: What appraisers look for: Home improvements that pay off
Mortgage brokers say more homebuyers are taking a second look at these options to buy a home in this market.
"Houses now, the market, even for a 900 square foot house, the price is going up like 350 already, so it’s going to be hard," said mother LaPorsha Thomas.
Rising home prices and mortgage rates are keeping some folks on the sidelines.
"Yah, no way I’d be able to afford a house right now," said Katie Willig.
That's leading to talk about 40-year mortgages, including by the Philadelphia Federal Reserve Chairman, and some mortgage brokers.
"We’re talking to customers about ways they can suppress that monthly mortgage payment," said Damion Hughes with Amerifirst Home Loans.
40-year mortgages are usually only offered by some mortgage brokers, online lenders, private lenders or credit unions. They can shrink your monthly payment.
"In numerical value, like I said anywhere from $150 to $200, and that’s based on an average mortgage of $250,000," explained Hughes.
But Rocket Mortgage warns in an article to watch for higher interest paid over the longer term loan. It calculates for a $225,000 loan at 4% interest, on a 30-year mortgage, the monthly payment would be $1,074, and total interest paid would be $161,706. It says on a 40-year mortgage, the payment would be $940 a month, but the total interest paid would be $226,373.
RELATED: How to make your home safer in tornadoes, hurricanes
Brokers say other mortgages getting a second look are ARM's, adjustable rate mortgages, where you can pay a lower interest rate than a fixed rate for a set term of say five, seven or 10 years. Then your rate adjusts to market rates, which can be much higher or lower.
Hughes says ARM's are good for people who know they will sell or refinance the home before the rate adjusts.
"ARM is going to be a short term solution. The average person stays in their home about seven years," said Hughes.
Hughes says more buyers are also taking advantage of 100% VA or USDA home loans.
"We can look at 100% financing of that nature, which they don’t have pay a down payment. They can just pay the closing costs if that’s an issue," said Hughes.
Talk to your lender and make sure you understand your options before you buy.