Date: October 23, 2005
Time: 11:30 AM - 12:00 PM
Program Business: Week Weekend

JILL BENNETT, co-host: Well, there are ways you can afford to buy into today's housing boom and get into your dream home for far less than you might think. Pat Hayes home in Manhasset, Long Islandis in the $1 million-plus market, but that doesn't mean he wants a hefty mortgage. As many recent homebuyers have done, Pat chose the 40-year fixed mortgage which offers significant monthly savings.

Mr. PAT HAYES (Home Owner with 40-year Mortgage, Americana Mortgage Group Client): I was able to still reduce my monthly payment by--I think it was around 10 percent. And I still liked the idea of paying down principle. And I wasn't going to get that with an interest-only.

BENNETT: The average 40-year mortgage comes with no prepayment penalty and is offered at the same rate as the 30-year, about 6 percent right now. A 40-year will save you on average $50 a month per every $100,000 you borrow. So, for a $200,000 mortgage you'll save $100 a month. But the interest will get you. Over the course of the loan you'll pay 20 percent more in interest. That's about$97,000 more for that $200,000 mortgage than you would've with a 30-year. Pat's mortgage broker says a lot of homebuyers are looking for ways to reduce their monthly payments. They're turning to interest-only loans designed for people who aren't planning to be in their homes longer than about five years.

Mr. BOB MOULTON (Americana Mortgage Group): Another very favorable product that's coming to vogue the last nine to 12 months are the interest-only mortgages. They're a little riskier because they're normally fixed for three, five, seven, or 10 years. The interest rates on interest-only are slightly higher but the payments are 20 percent less.

BENNETT: The most popular one is the five-year fixed interest-only loan at 5.25 percent. But after five years the rate goes to a one-year adjustable rate, and that could be a lot higher. Another option, the one-month adjustable rate. The rate is as low as 1.25 percent for the first month then jumps to 4.75 percent, but the rate is subject to change monthly. And interest-only or variable rate mortgages carry a lot of risk.

Mr. DAVID LEREAH (Chief Economist, National Association of Realtors): I think that there are households in this country right now and investors that are relying heavily on interest-only loans. That's stretching their incomes in order to make that purchase. If interest rates go up they're in trouble. So we are introducing some element of interest rate risk into some of these local markets where these interest-only loans are highly concentrated.

BENNETT: David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" suggests first time low income homebuyers look to Fannie Mae and Freddie Mac for low down payment loans. But there are plenty of ways to finance a home purchase no matter what your income. Ask your accountant if your retirement account will allow withdrawals for home purchases, and then ask the lender to reduce the fees you pay at closing. And look into seller financing where the seller finances part of the mortgage just for you.