Notes on Mortgages in a Market With Interest Rates on Rise
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Nicholas Bratsafolis is the chairman of residential mortgage lender Homebridge Mortgage Bankers Corp. He spoke with The New York Sun’s Julie Satow about mortgages in the current environment of rising interest rates.
Q. With the Federal Reserve raising interest rates from historic lows, what type of mortgage products should homeowners be considering?
A: The big thing right now is what is called a pay option arm, where you pay a low introductory interest rate for three months, and then you are given an option where you can pay a minimum amount, pay only the interest, or pay a fully amortized amount for 15 years or a fully amortized amount for 30 years. The nice thing is that you can pay the minimum, but the downside would be negative amortization. This product is for a sophisticated investor, someone who understands their cash flow and the ramifications of negative amortization.
What about people who have adjustable rate mortgages? Should they be worried about their situation?
Adjustable rate mortgages are very popular, but six-month and one year ARMs are definitely risky. I advise my clients to have three-year, five-year, and seven-year ARMs because you can have a fixed rate for a few years and then you have hedged your bet when you plan on selling your home. I also advise my clients to err on the side of caution, so if you think you may sell in three years, get a five-year ARM, or if you think you may sell in five years, get a seven-year ARM, and so on.
Are mortgages something a young couple buying their first home should be very wary of, or can mortgages actually be a good credit building tool?
Mortgages offer low interest rates, and they are one of the best ways to establish credit. The idea that someone has consistently paid off their mortgage payments on time carries a lot of weight among banks and other lending institutions when trying to take out other types of loans. I do caution young couples however, not to take out more than you can afford. I often see real estate brokers and mortgage bankers pressuring young couples to overextend themselves. If a hiccup occurs in their life, such as a baby, or a job loss, it is very difficult to absorb that high monthly expense, which can become a definite problem.
