The strong mortgage market has slowed from its record pace because of rising interest rates and rising home prices. However, interest rates are still historically low. This has pushed lenders to come up with new loan products or market the ones they already have more aggressively. If you haven't been shopping in a while, you will find a lot of new things to choose from. Here's a quick look at some of the new and popular products on the market today.
Interest Only: With this type of loan, you only pay the interest on your mortgage, not the principal. This lowers your monthly payments and can help you buy a bigger home or save more money when you refinance your mortgage or buy a home. If you use it wisely, you can also free up cash flow that you can use to invest or pay off high-interest debt.
Negative amortisation: These are often called "option arms" or "choice mortgages" when they are sold. With this kind of loan, your monthly payment doesn't cover all of the interest. Usually, the balance on your mortgage is going up, and the interest rate is usually a monthly variable rate. With one of these loans, you can cut your monthly payment by a lot. You can also use it to buy a home or refinance your mortgage. This programme should only be used by people who know what they're doing, and it's important to know how the loan works.
40-Year Amortization: This loan is paid off over 40 years instead of 30. Like the Negative Amortization and Interest Only programmes, this one helps you pay less each month.
Stated Income / Reduced Income Documentation Loans: There are different kinds of these loans, but they are mostly used for people whose income is hard to prove. These can be used to refinance a mortgage, get a second mortgage, or buy a home. As lenders have grown more comfortable with credit scores, more and more people are buying these products. Basically, the credit score is what the lender uses to decide whether or not to give you a loan. They know that people with higher credit scores are more likely to pay their mortgage, so they don't need to check their income as much.
Programs for ALT A - The "ALT" stands for "alternative," and the "A" stands for the type of borrower. These are the kinds of mortgages that don't fit into Fannie Mae and Freddie Mac's stricter rules. Most of the time, these mortgage refinancing programmes offer more flexibility when it comes to loan-to-value ratios and documentation of income. They can be used for buying a home, refinancing an existing mortgage, or getting a second mortgage.
Hybrid second mortgages: In the past, you could get either a fixed-rate loan with a set term or a variable-rate line of credit with no set end date. Now you can get the best of both worlds. You can start your second mortgage as a home equity line of credit with a variable interest rate, and then switch all or part of it to a fixed rate for a set number of years.
