Mortgage professionals and consumers should take a look at more traditional financing tools in today's turbulent housing market, according to Dr. Susan M. Wachter, Professor of Real Estate and Finance at the University of Pennsylvania's Wharton School. Dr. Wachter made her comments in the U.S. Mortgage Index, a new quarterly report launched today to examine key trends in residential real estate financing. Published quarterly by Dr. Wachter, in association with Genworth Financial Inc., the new index will evaluate which mortgage products offer borrowers the best value, comparing payments for various mortgage options. The first issue examines home financing over the past year, comparing monthly payments for five popular types of low down payment mortgages and describing why some are now better for some borrowers than others. "Clearly there is a lot of confusion about how monthly payments can fluctuate, as seen in the growing number of delinquencies and foreclosures across the country, "said Dr. Wachter. "My new index shows that clever financing of non-traditional mortgages and piggyback loans is not only risky, it's more expensive."
Comparisons in the inaugural report are based on a $200,000 loan at current interest rates and adjusted to projected interest rates at the end of their term. The Index shows most of the loans starting with low monthly payments in the first month, but then spiking after five years. The one exception was the traditional 30-year fixed rate mortgage with mortgage insurance, where payments decreased after five years. By contrast, the Pay Option mortgage monthly payment jumped by nearly 300 percent. The following mortgages are featured in the new index for March. The first amount reflects the payment in month one, the second amount reflect the payment in month 61:
  • 30-year Fixed with monthly mortgage insurance: $1,361 / $1,231
  • 30-year Fixed with Single Financed Premium mortgage insurance: $1,269 / $1,269
  • 8-15 Combo Loan (Piggyback): $1,299 / $1,402
  • 10/1 Interest-Only ARM: $1,172 / $1,277
  • Pay Option ARM: $739 / $2,109
"It's troubling that short-term, adjustable rate mortgages remain popular, even for borrowers who might not be able to afford their mortgage payment after the interest rate adjusts. This includes piggyback loans and other mortgages that lead to little equity build up," Dr. Wachter said. "With little or no equity available, refinancing has become difficult, and foreclosures are up nationwide." For more information, visit
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