Yet the payment advantage of such loans shrinks because they have higher initial rates than their one-year counterparts. Balloon loans are another option available to get a lower payment in the first few years. These mortgages charge less interest up front for a set time frame, but require the borrower to either refinance at the end of that period, pay off the loan or convert it to a fixed payment schedule. New home buyers may be able to use builder incentives to their advantage, too. Cohen of Irwin Mortgage notes that companies in his market usually offer a few thousand dollars to consumers to put toward their mortgages.
Someone can use that money to buy down the loan rate for a couple years.
That would help people who don't have much money now but expect to earn more later. Others who want to have a low rate for good can put the builder's money toward that end. In super-hot markets, says Ben Coombs, a certified financial planner with Petra Financial Advisers in Three Rivers, Calif., the cost of owning is just too high, especially for people who don't plan to live in the area for long. It's just that you can rent the same house for considerably less than the carrying costs of owning it with the high prices and now the higher interest rates. Of course, not everyone is ready to throw in the towel.