The Bottom Line
By Susan L. Smith,
Director of Training & Financial Education

Meet Susan L. Smith:

Getting a mortgage has developed into a complicated process. For many years, a mortgage was 30 years of making the same payment every month to the company who issued the loan. Then a faster payout of 15 years was added and Adjustable Rate Mortgages (ARM) to offset very high interest rates quickly followed.

In the 1980s, it was good to get a rate of 11%. The ARM was the big item at that time and the adjustments went as high as 17%. Over the past 30 years, rates have continued to come down but prices, taxes and insurance have increased so relief has been minor.

Today there are many, many products to choose from. First of all, the company you deal with may not be the lender. The lender may not be the original source of the money. Investors contract with lenders to sell mortgages and lenders contract with servicers to handle the day-to-day business of collecting payments. The investor sets guidelines for the mortgage. If the mortgage becomes past due, the servicer is bound by those guidelines. To make matters worse, investors and lenders sell portfolios to generate cash and you end up with a new servicer and new rules just as you were getting comfortable with the old company.

There are traditional products of 10, 15 and 30-year mortgages. And, now there are 40 and 50-year loans available in areas with high value appreciation to make homeownership more affordable. The jumbo loan starts at $417,000.00. The interest rate can be fixed, adjustable or zero for a period of time.

To make things more complicated, there are interest only loans and numerous variations of the ARM plus a balloon payment at the end of 30 years. There are negative amortization products, 80/20 loans and loans with a choice of payment. You can choose to pay no interest, include interest or only interest.

According to the National Association of Realtors, half of first-time homebuyers are 32 or older. A 50-year mortgage puts them in their 80s before the loan will be paid off. But, retirees at age 65 purchase new homes and get 30-year loans. Neither plans to actually pay off the mortgage. Purchasing rather than renting creates equity, we hope!

If you are in the market to purchase property, you have your work cut out for you. Be informed on each option. Check out the upside and the downside of each option before you commit for 30, 40 or 50 years.

By the way, if you go into a mortgage with the intention of selling after a few years, be sure to ask about prepayment penalties. The penalty could be thousands of dollars.

CCCS of Dallas offers classes for homebuyers. Our Education Department presents "So You Want To Be A Homeowner" in English and Spanish the first weekend of each month. Selected branches offer the same class one-on-one. The class is free, fun and financially smart. We are here to help you be a better consumer. Buying a home is the greatest financial decision you will make, make it a good one by being informed.

Susan L. Smith, Director of Training & Financial Education of Consumer Credit Counseling Service of Greater Dallas. You may email her at TheBottomLine@cccs.net.