Betting the House?
Gambling in the United States is more popular than ever before-but your house is the one thing you don't want to bet.
Upping the Ante
In the high-priced, low interest rate housing boom of the past several years, many homebuyers signed up for interest-only loans, payment option adjustable rate mortgages and piggybacks. In doing so, they generally bet on two things: that they would be able to refinance their way out from under future payments they might not be able to afford and that home prices would continue to go up and they would be able to sell later for a profit.
Today, however, home prices aren't accelerating as fast as in boom years, and affordable refinancing options may not be as available as interest rates go up.
A Safer Bet
In today's economic environment, mortgage insurance on a fixed rate loan is often a better deal, offering lower monthly payments and more stability. Mortgage insurance is designed for the low down payment market, often qualifying borrowers with a down payment of 3 percent or less.
"Compared to nontraditional loans, mortgage insurance on a fixed rate loan is simple, safe and smart," said Steve Smith, President and CEO of PMI Mortgage Insurance Co. "It's simple because unlike a piggyback loan, you have only one loan and one monthly payment, and because mortgage insurance drops off when it's no longer needed. It's safe because fixed monthly mortgage payments are predictable and stable-if interest rates rise, you won't feel it and you won't be hit with large balloon payments. It's smart because you don't need to wait to save a 20 percent down payment. Mortgage insurance helps you get into a house and start building wealth now."
Doug Long, CEO of Pinnacle Financial, one of the nation's fastest-growing, independently owned mortgage lenders, explained, "It's like the old adage says, 'If it's too good to be true, it probably is.' Mortgage finance products are no different, and borrowers need to be sure they are getting a good deal tomorrow, when monthly payments may go up, as well as today. Staying in your home shouldn't be a gamble."
Putting the Odds in Your Favor
When choosing a mortgage, understand the risks you're signing up for. By calculating the costs-not only today, but in the future, should interest rates rise, balloon payments become due or introductory periods end-you can take the gamble out of the mortgage finance game.