Creative mortgages have been mushrooming over the past few years. I think they become popular whenever property values become too high and the affordability drops. After a crash in prices, the lenders tighten their lending standards and they disappear. [From what I heard about the last crash]
The Option ARM loans have been pretty popular among investors. You have an option to pay you monthly payment as a
- Fully amortized 30 year loan
- Fully amortized 15 year loan
- Interest-only payment
- Negatively amortized interest-only payment thats probably 1/4 or 1/2 of the Interest-only payment
I’m not a big fan of these loans or the negatively-amortized loans because the APR is usually 0.5% higher than the interest-only loans[IO loans] and you end up payment compound interest on the money you borrow. I’ve been getting IO loans where the interest rate is fixed for the first 5 years.
However a new loan that I may opt for is the fixed 30 year loan which is interest-only for the first 10. After that its amortized over the remaining 20 years. The interest rate if fixed over the life of the loan. I may end up gettting these loans since the interest rate is only 0.25-0.5% higher than the 5 year IO loans and it gives you the security that you’ll be able to afford the payments in the event you actually keep the property for a long period of time. I think a 40 year option is also available.
I would consider getting this on my personal residence over the regular 30 year amortized as it lets you pay less for the first 10 years.[whenever i buy my personal residence that is. I’m currently renting!]