Mortgage Loan Options – Going Exotic

Exploring Creative Mortgage Options

In today's diverse lending market, there are a variety of mortgage options designed to meet a wide range of needs. If traditional mortgages don't fit your situation, you might find a creative mortgage solution that works for you. Here are some innovative mortgage options to consider:

1. Two-Step Mortgage

• What It Is: A Two-Step Mortgage offers a lower fixed interest rate for an initial period, typically 5 years. After this period, the interest rate adjusts based on current market conditions.

• Advantages:

  • Lower Initial Rate: Helps make initial payments more affordable.

  • Flexibility: Can be beneficial if you plan to move or refinance within the initial fixed period.

• Considerations:

  • Interest Rate Adjustment: Be prepared for potentially higher payments after the initial period ends, depending on market rates.

2. Graduated Payment Mortgage

• What It Is: This mortgage starts with lower payments that gradually increase over a specified period, usually 5 to 7 years. After this period, payments increase to a higher level compared to a fixed-rate mortgage.

• Advantages:

  • Lower Initial Payments: Makes it easier to qualify for a larger loan amount.

  • Ideal for Short-Term Ownership: If you plan to sell the property within the initial low-payment period, you can benefit from the lower payments and potentially significant home appreciation.

• Considerations:

  • Increasing Payments: Be prepared for higher payments in the later years of the loan.

3. Shared Appreciation Mortgage (SAM)

• What It Is: With a Shared Appreciation Mortgage, you agree to share a percentage of the future appreciation of your home with the lender. This type of mortgage is often offered by private investors or family members.

• Advantages:

  • Lower Interest Rates: Often comes with lower interest rates compared to traditional loans.

  • Potentially Easier Qualification: Useful for those with poor credit or limited borrowing options.

• Considerations:

  • Sharing Appreciation: You will need to give up a portion of your home's future value gain, which can be substantial.

Additional Creative Mortgage Options

• Interest-Only Mortgages: Allows you to pay only the interest for a set period, after which you begin paying both principal and interest. This can be useful if you expect your income to increase in the future.

• Balloon Mortgages: Features lower payments for a set term with a large lump-sum payment due at the end of the term. This can be beneficial if you expect to refinance or sell the property before the balloon payment is due.

• Reverse Mortgages: Available for seniors, this option allows you to convert home equity into loan proceeds. You don’t make monthly payments, but the loan is repaid when you sell the home or pass away.

Finding the Right Solution

To explore these and other creative mortgage options, consider working with a reputable mortgage broker. They can provide access to a range of products and help tailor a mortgage to your unique financial situation.

Before committing to any mortgage, be sure to carefully review the terms and understand the long-term implications, including potential future payments and the impact on your home’s equity.