Mortgages - Loan Terms Made to Order

AppId is over the quota
AppId is over the quota
Customized mortgages aren’t new. But industry experts say they are seeing more and more borrowers opt for fixed-rate loans with terms other than the standard 30 or 15 years, especially when it comes to refinancings.

Last year, nearly 17 percent of all refinanced mortgages were with “other length” fixed-rate loans, according to the Mortgage Bankers Association, which noted that in August, September and October, the share was 20 percent. Most of those “other length” loans were in 20-year mortgages, though loans are also available for 10, 25 and 40 years, and even for “oddball” terms like 23 or 12 years.

Michael Fratantoni, the association’s vice president for research and education, called the 20-year mortgage “a new phenomenon” and said it had “become the third-favorite product.”

Despite this increased popularity, some borrowers aren’t aware that they could take out a 20-year mortgage, said Jason Auerbach, a divisional manager of First Choice Loan Services in Manhattan. Lenders usually offer home loans in five-year increments, he said. JPMorgan Chase, for example, lists on its Web site fixed-rate mortgages in 10-, 15-, 20-, 25-, 30 and 40-year terms.

The shorter terms are especially valuable to people refinancing after paying down their 30-year mortgage for five or seven years, Mr. Auerbach said. If they take a 20-year mortgage, they can reduce their interest rate — and the term — and possibly even get a monthly payment the same or slightly lower than before.

The 20-year mortgage is becoming so prevalent, Mr. Fratantoni said, that banks are starting to sell them off to investors or in the secondary mortgage market.

Meanwhile, if you want to match your loan term to a life event and it’s an unusual number of years, like 17 or 23, expect to do some digging. Those loans have limited availability and their price — the rate or fees — could be higher, Mr. Fratantoni said.

“You can get some oddball amortization — you just have to ask for it” at a smaller bank, credit union or specialty lender, said David Boone, a first vice president for residential lending of Provident Bank in Jersey City. His mortgage team recently made a home loan with an eight-year amortization, which was aimed at a borrower close to retirement. Many customers seeking to refinance ask for odd loan terms to avoid increasing the length of their repayment schedule, he noted.

Of course, you could also create your own 23-year mortgage: for example, by obtaining a 25-year mortgage and then determining how much extra you need to pay each month if paying it off two years earlier. This approach could work with biweekly loan payments too; typically, these will reduce your payoff by five to seven years, Mr. Auerbach said.

Before you decide, get your mortgage professional to run different amortization tables so you can compare the payment and other details. Ask which terms come with reduced interest rates. These vary; some lenders step up the rate. For instance, someone getting a 12-year term will very likely receive the 15-year mortgage rate, Mr. Boone said.

Explore the loan options in the context of your other goals and timelines, said Debra L. Morrison, a financial planner with Trovena in Roseland, N.J. Ask yourself and your partner: When do I expect to retire? When could I become debt-free?

It’s important that you continue to fund your retirement accounts, too, and not focus solely on a short-term mortgage. If you rustle up an extra $400 a month in income, split the extra payments between your mortgage and a 401(k) or other retirement account, she said.

“A free-and-clear home is a wonderful thing for a lot of people,” she said.

View the original article here