LOOKING FOR A Mortgage That Will Retire When You Do? Or maybe you want to plan a refinance so that the loan is paid off when the kids leave for college. There are a number of lenders who would be happy to oblige.
Personalized mortgages are nothing new. But industry experts say they’re seeing more and more borrowers opting for fixed-rate loans with terms other than the 30- or 15-year standard, especially when it comes to refinancing.
Last year, nearly 17% of all refinanced mortgages had fixed-rate loans “of another term,” according to the Mortgage Bankers Association, which noted that in August, September and October, the share was 20%. Most of these “other terms” were 20 year mortgages, although loans were also available for 10, 25 and 40 years, and even for “weird” terms like 23 or 12 years.
Michael Fratantoni, vice-president of the association for research and education, called the 20-year mortgage a “new phenomenon” and said it had “become the third favorite product”.
Despite this growing popularity, some borrowers don’t know they could take out a 20-year mortgage, said Jason Auerbach, division manager of First Choice Loan Services in Manhattan. Lenders typically offer home loans in five-year installments, he said. JPMorgan Chase, for example, lists 10, 15, 20, 25, 30 and 40 year fixed rate mortgages on their website.
The shorter terms are especially valuable for people refinancing after paying off their 30-year mortgage for five or seven years, Auerbach said. If they take out a 20-year mortgage, they can lower their interest rate – and the term – and maybe even get the same or slightly lower monthly payment than before.
The 20-year mortgage is becoming so prevalent, Fratantoni said, that banks are starting to sell them to investors or into the secondary mortgage market.
In the meantime, if you want to match your loan term to some life event and the number of years is unusual, like 17 or 23, expect to do some research. These loans have limited availability and their price – the rate or the fee – could be higher, Fratantoni said.
“You can get weird amortization – you just need to ask for it†at a small bank, credit union, or specialty lender, said David Boone, senior vice president of home loans at Provident Bank in Jersey City. His mortgage team recently entered into an eight-year amortization mortgage, aimed at a borrower nearing retirement. Many clients looking to refinance are asking for irregular loan terms to avoid extending the length of their repayment schedule, he noted.
Of course, you can also create your own 23-year mortgage: for example, getting a 25-year mortgage and then figuring out how much extra you have to pay each month if you pay it back two years earlier. This approach could also work with bi-weekly loan payments; Typically, these will reduce your gain by five to seven years, Mr Auerbach said.
Before you make your decision, have your mortgage advisor run different amortization schedules so you can compare payment and other details. Ask what terms come with reduced interest rates. These vary; some lenders increase the rate. For example, someone getting a 12-year term will most likely receive the 15-year mortgage rate, Boone said.
Explore loan options in the context of your other goals and deadlines, said Debra L. Morrison, financial planner at Trovena in Roseland, NJ Ask yourself and your partner: When do I think I will retire? When can I get rid of my debts?
It’s important that you also continue to fund your retirement accounts and that you don’t just focus on a short-term mortgage. If you’re making an extra $ 400 a month, split the extra payments between your mortgage and a 401 (k) or whatever retirement account, she said.
“A free and open house is a wonderful thing for a lot of people,†she said.
