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(1) Getting Startedhighlighting the Essentials; (2) Defining Terms; and (3) Payment Tables

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(1) Getting Startedhighlighting the Essentials; (2) Defining Terms; and (3) Payment Tables DOCUMENTRESUME ED 346 309 CE 061 362 TITLE The Mortgage Money Guide. Creative Financing for Home Buyers. Updated Edition. INSTITUTION Federal Trade Commission, Washington, D.C. PUB DATE 91 NOTE 22p.; Prepared by the Commission's Division of Credit Practices and the Office of Consumer and Business Education. AVAILABLE FROM Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402 (order no. 016-000-00319-8, bulk orders only: 100 copies, $45.00). PUB TYPE Guides - General (050) EDRS PRICE MF01/PC01 Plus Postage. DESCRIPTCRS Budgets; Consumer Education; Credit (Finance); *Housing; *Loan Repayment.; *Money Management; Real Estate IDENTIFIERS *Mortgages ABSTRACT This guide to creative home financing outlines basic concepts needed in shopping for a home loan. Many plans aredescribed so that buyers can make their own decisions.The guide contains three sections: (1) getting startedhighlighting the essentials; (2) defining terms; and (3) payment tables. The first section summarizes 15 financing plans in a reference chart: fixed rate mortgage;15-year mortgage; adjustable rate mortgage; renegotiable ratemortgage (rollover); balloon mortgage; graduated payment mortgage; shared appreciation mortgage; assumable mortgage; seller take-back; wraparound; growing equity mortgage (rapid payoffmortgage); land contract; buy-down; rent with option; and reverse annuitymortgage (equity conversion). Type, description, and considerations are included for each plan. In addition to defining the 15summarized plans, the second section discusses changing rates, readingthe fine print, and losing ground. The third section includes somefinancial tables to estimate the monthly costs for principal andinterest of a specific mortgage or loan. An index and Federal Trade Commission addresses and phone numbers are included.(NLA) aloatra**onagAangsforas***********op*********Iwora***0***Ialtaaaaggstannus**asscan Reproductions supplied by EDRS are the best that canbe made * from the original document. 171:1AnasZasta**110***fte*Itatt*IITIVASVOIV12*************000111*Vapnlin2staa******APA*Onft \s;"/1 - Isamr. P+, MVO 4%. 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Many types of financing arrangement. mortgages are now available, and O Negotiate with the seller or new plans are continuallybeing in- lendet Better terms may be avail- troduced. With all these ;..hoices, you able than those initially offered. may wonder what to lookfor O Consider getting an attorney or a Some of the mortgages now avail- real estate broker to represent able are traditional plans, with inter- You. This could be thelargest est rates and payments that remain investment of your life. constant throughout the loan and pay off your debt over along period. O Study all available materials about your mortgage costs.With loans Others represent a departure from from institutional lenders. the the older plans: they can involve creditor is required to give you a more risk for the buyer and are frequently tied to changes in the statement of your loan costs and terms before you sign the agree- market. But they also can make home buying possible and may offer ment. This information include the "annual percentage lower interest rates. So if you want to purchase a rate" (APR) which nwasures your home, you can still find the right total credit costs, including mortgage for your needs. But to interest, points, and mortgage make sure you understand the insurance. chokes, you should educate your- Finally, if you're thinking about self first. refinancing your current home mort- This guide will introduce you to gage, you may alsofind this guide some of the many plansavailable. helpful. When you refinance, you Other sources of information include are actually signing a newmortgage your state, county, or city consumer and paying off your present one.So. affairs office; locel realtors, home you might save moneyby switching builders, and lenders; bookstores; to a different type of mortgage.Ask and the real estate section of your several lenders what terms and newspaper. You may also want to types of mortgages are available, buy a book of mortgage payment and bargain for the deal that hest tables to help you calculate whether suits your needs. you can afford aspecific loan. Above all, shop carefully. And. as you read through thisbooklet, keep in mind the following: O Don't use yesterday's assump- tions about today's real estate market. The key is affordability. Consider your total housing costsinclud- ing loan payments (now and in the future), maintenance, prop- erty taxes, and your anticipated income changes. 0 Look into several sources of financing. You may be able to combine two or more mortgages. G IGHTINGT ESSENTIALS * Description Fixed Rate Moltgage Fifteen-Year Mortgage Adjustable Rate Mortgage Renegotiable Rate Mortgage (Rollover) Balloon Mortgage Graduated Payment Mort?, tqe Shared Appreciation Mortgage Assumable Mortgage Seller like-back Wraparound Growing Equity Morvage (Rapid Payoff Mortgage) Land Contract Buy-down Rent with Option Reverse Annuity Mortgage (Equity Conversion) *Please see the se ctt:m , -Defining Your Thrms" on paps4-15, for additional discussion of these conixpts. 5 Offers stability and long-term tax advantages. Interest rates may be higher than other types ot financing. New fixed rates are rarely assumable. 1111. 11111,Frequently uttered at slightly reduced interest raw. Otters taster accumulation ot equitythan traditional fixed rate mortgage but has higher monthly payments, Involves paying less interestbut this may result in fewer tax deductions. tttarting interest rate is slightly below market. but payments can increasesharply and trequentlY it mdex increases. Payment eacm prevent wide fluctuations in paymentsbut may cause negative amortization (see box. page 15). Rate caps limit amount totaldebt can expand. Less frect lhanges in interest rate otter some stability Otters low monthly payments but possibly no euuity until loan is fullypaid hen due. loan mutn be paid ott or retmanced. Refinancing poses high nsk it rates Easier to quality tor Buyers inc.orne must be able to keep paiewith scheduled payment increases With an adiustabk rate. payment increases beyond the graduated pa% merits canresult in additional negatavy awn-manor' (see box, page 15). It home appreciates greatly, total cost cit loan lumps It hometails to appreciate proected increase in value may still be due. requiring refinimeing atpossii,h- higher rates. 1.owers monthly payrwrits Max be prohibited it -due on sale- use is in Oruzinal Mortgage isee box, page 12). Not permitted on most new fixed rate mortgages \lay otter a below- marko interest rate: may have a balloon payment requiringfull payment in a tei% %ears or refinancing at market rates, w hichcouki sharply increase debt . lender may call in old mortgage and require luiTher rateIt buyer default ,.seller frai,n take utai action to collect debt rerrbit.s rapid payoff ot debt because pax ment int Teases reduceprIniipal. income piu-d able to keep up with payment increases. 1.31,7041. \lay otter no equity until loan is tullv paid. Buyer has few prowitions itconflict are,v, during 4,4.1 Otter a break from higher payments dunng early years Friablesbuyer with lower income to quality With adiustable rate mortgage. payments may iump substantially atend let subside Developer may increase selling price nables renter to buy time to obtain down payment anddecide whether to purchase. Locks in prl, dunng inflatwnam times Failure to take option m loss in option tee and rental payments. Can provide homeowners with nyt'ded t,ash Atend ot term bornisir must ha% e moneyavailable 10 avoid selling property or refinancing.
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