The 50 Year Mortgage

The 50-year mortgage originated in Southern California in early 2006. It was developed to allow more people the opportunity to purchase a home that might be slightly out of their reach otherwise. The general concept behind a 50-year mortgage is to increase the duration of the loan, and thus lower each payment.

With home prices at historic highs, these features allow more people to qualify for a home loan and realize their goal of home ownership. Most 50-year mortgages are set up as 5/1 hybrid loans where the interest rate is fixed for the first 5 years and adjustable thereafter where the rate is determined by an index (the LIBOR for instance). In general, 50-year loans are a better alternative and less risky than other small payment options, such as the interest-only mortgage. With 50-year mortgages you actually build equity in your home while maintaining a very low monthly payment.

A 50-year loan is especially good for those who want to purchase a home and expect to either sell or refinance in the next 5-7 years. The 50-year mortgage is not for everyone though, so one of the best things you can do is to get matched with lenders, compare rates at different terms and decide what loan is best for your individual situation.

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Lower Interest Rates, Lower Payments

The reason most people refinance their home loans is to lower their interest rate, which usually lowers their monthly home loan payment. (This depends on how your loan is structured for repayment of interest.)

Drowning in Debt? Refinancing Can Help

Another reason to consider refinancing is to consolidate high interest consumer loans with your home mortgage balance. Borrowing more than the amount needed to pay off your original mortgage loan is called "cash-out refinancing." When your refinancing is done, you will make one payment at the lower interest rate of your new home mortgage loan. In many cases, interest paid on a home mortgage is tax deductible (consult your tax advisor for details). Sounds good, but how does it work? Here are the basic steps of how "cash-out" refinancing works:

• You take out a new mortgage loan of an amount large enough to pay off your present mortgage and your credit cards and other debts.
• When your new loan closes, funds will be distributed to pay off your original mortgage. The funds you borrowed to pay off your other debts may be paid directly to those companies, or you may receive a check at the closing.
• Exact procedures will vary according to lender requirements.

It's a good idea to shop around for mortgage refinancing. Many different mortgage loans are available, and consulting a financial advisor can help you maximize the benefits of refinancing.

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Sources: Federal Trade Commission Website, Mortgage News Daily Website