Two Cut-Rate Mortgage Programs Are Making Comebacks
Two cut-rate mortgage ideas that haven't been seen nationally for nearly two decades have resurfaced this summer and appear to be picking up significant steam.</br></br>Both plans allow home buyers to qualify for interest rates below prevailing market levels. Both work especially well for "jumbo" loan borrowers -- those seeking mortgages of more than $227,000 -- and for buyers who know they're likely to sell or move sometime in the coming four to five years.</br></br>But both require you to strike a bargain of sorts with your lender. You've got to give up something to get the discount rate.</br></br>The first oldie-but-goodie making a comeback is the prepayment penalty plan. In exchange for a fixed 30-year interest rate that's about 0.25 percent less than the regular rate, you agree not to refinance during the next 60 months. After that, you're free to do whatever you want. And during those first 60 months, you are free to pay off the mortgage loan without penalty if you move or sell the house.</br></br>But if you prepay the mortgage balance simply to refinance with another lender, you get hit with a penalty, the size of which varies according to state law. In California, for example, the prepayment penalty can't exceed 80 percent of six months' interest. In other states, where such prepayment penalties are subject to different statutory restrictions, the penalty may be different, or not permitted at all.