- The Washington Times - Thursday, November 25, 2004

Each year at Thanksgiving, I like to summarize what has happened in the mortgage and real estate market. And each year, I find that there are a lot of things for which to be thankful.

Let’s take a look at the market changes since last Thanksgiving.

Most folks would agree that the continuing rise in home values has been the biggest news in real estate. Depending upon who you ask and where you look, home values have risen anywhere between 5 and 20 percent in the last 12 months. This follows similar gains in previous years.

Homeowners are enjoying their new-found equity by taking out cash-out refinances in record numbers.

In the early part of the year, it was widely predicted that interest rates would take a sharp turn upward.

The predictions were dead wrong. Long-term interest rates did, indeed, increase moderately in the second quarter of this year, but it didn’t take long for them to drop again. As a matter of fact, current rates on 15- and 30-year fixed-rate mortgages are almost exactly where they were last Thanksgiving.

Lenders continue to offer new products in response to ever-changing consumer demand — 100 percent financing is now widely available, and in most cases, is offered at competitive market rates.

Folks with less-than-perfect credit have a myriad of programs to choose from, something that was unheard of just a few years ago.

Although existing homeowners are gleefully watching their houses shoot up in value, renters and would-be home purchasers are finding that homeownership is becoming more and more out of reach.

Lenders have responded to the affordability issue by offering interest-only loans, which allow the borrower to make payments that consist of only the interest charged for the month for a specified period — no portion of the principal is paid. An interest-only loan increases borrowing power by 20 percent over a traditional loan with a 30-year amortization.

I am, indeed, a big fan of finding affordable ways for more folks to become homeowners. At the same time, the continuing development of innovative mortgage programs designed to increase homeownership will also bring about programs that carry some risk.

For example, it is true that interest-only mortgages and adjustable rates will ease the monthly obligation. But any prospective home buyer stretching themselves to the limit should carefully consider the downside of such programs. In other words, make sure you can afford the mortgage not only right now, but in months and years from now.

Henry Savage is president of PMC Mortgage in Alexandria. Contact him by e-mail ([email protected]).

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