Innovative Mortgage Products

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    • A mortgage is a home loan. Mortgage lenders agree to finance the purchase of a home in exchange for conditional right of ownership (lien) until the loan is paid off. As banks and mortgage lenders compete for business, they sometimes introduce innovative mortgage products to appeal to borrowers or to expand opportunities for more risky borrowers.

    50-Year Mortgage

    • The 50-year fixed mortgage is one of the newest conventional mortgage products on the market as of November 2010. It is not universally available and California mortgage lenders have led the way in offering this controversial mortgage product. Nationwide, 15- and 30-year fixed loan terms remain popular. Longer repayment terms, in this case 50 years, spread out the repayment of your loan. Borrowers that have access to these loans see the benefit of lower monthly payments and often use the 50-year loan to buy a bigger home than they could afford otherwise. Dana Dratch of Bankrate.com points out in her article "50-year mortgages: low payments, low equity" that many financial experts worry that equity build-up is too slow on such long loan terms. Some say they are not much better than interest-only loans.

    Interest-Only and Option ARMs

    • A June 2005 article called "The Mortgage Trap," published in Business Week, presented some of the flexible payment mortgage products taking hold of the market at that time. Stories of young homeowners and suburbanites being lured by interest-only or or so-called "option ARM" loans foreshadowed much of the hyper-aggressive mortgage activity that led to the housing and credit market bubbles beginning in 2007 in the U.S. Interest-only loans, in which borrowers are required to pay only interest during an initial repayment phase on the loan, were very popular. Option ARMs allow homeowners to choose monthly from option payments of either principal and interest, interest only, or less than interest owed (ultimately increasing principal). These loan products enhance a borrower's buying capital, but can obviously create risky situations, as evidenced by record foreclosures in 2008 and 2009.

    No-Fee Refinance

    • Mortgage lenders have marketed "no-cost refinancing" or "low-cost refinancing" for years. However, most often these campaigns are traps for unknowing consumers that often find hidden charges. Farnoosh Torabi points out in his article "Refinance Without the Fees," published by the website Main Street, that top banks are starting to offer expedited, no-cost refinancing options to top borrowers in an effort to avoid having customers lured away by lenders with lower rates. Torabi specifically references the Wells Fargo "3 Step Refinance" program introduced in 2010 that offers qualified mortgagors an opportunity to do a close-at-home, no-cost refinance to a lower rate. With mortgage rates at historic lows (4.24 percent national average according to Bankrate.com on November 4, 2010), banks are competing for refi business. Torabi notes "the catch" is that you likely will not get the same rate you would by paying closing fees at another bank, but he cites one homeowner who estimated a savings of $7,000 to $16,000 up front.

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