Times have certainly changed and rates are planning to adjust this year, with many homeowners unable to pay the new amount.  The good or bright news is that rates are at an all time low, to be exact, 37 years low!  The large issue that home values have decreased dramatically over the past 2 years which means that homeowners will be unable to refinance because they will owe more than what their house is worth.  It’s a huge issue and will be seen for quite sometime till the housing market has time to recover.

While the government has taken some involvement to keep things afloat, interest rates are tied to real estate sales.  But there is no guarantee how things will play out for 2009.  If you have a home to sell in 2009, a short sale is a much better alternative.

• Piggy Back Loans: These loans allow buyers to purchase homes with small down payment and help them avoid private mortgage insurance (PMI). Two loans are approved concurrently, the first mortgage usually consists of 80% of the property value and the second mortgage equals about 10-20% of the value, with the down payment making up the difference. The biggest benefit with this loan type is that overall payments are usually less than those that require PMI.
• Two-step Mortgages: These mortgages are specialized ARM’s which adjust at 5 or seven years. After the adjustment, the rate will remain fixed for the life of the loan. The new rate will not go above 6 percentage points than the initial rate, but the rate can drop as the market changes. Two-step mortgages are similar to fixed rate mortgages but an automatic refinancing built into the product.
• Convertible ARM’s:The loan gives the buyer the option of converting to a fixed rate and alleviates some risk involved with fluctuating interest rates. Converting to the fixed usually requires some kind of fee and the rate will most likely be higher than standard rates.
• Balloon Mortgages: These short term fixed-rate loans begin with low fixed payments and then end with one large sum payment for the remaining principal at the end of 5, 7 or 10 years. It can be a smart choice if the buyer only wants to stay in the home a couple years.
• Convertible Loans: These loans act like a fixed rate during their first 3, 5 or 7 years. They usually have a lower interest rate initially but then turn into a adjustable rate mortgages. If income is expected to increase or if interest rates are going to fall, then it could be a smart choice
• Graduated Payment Mortgages: The mortgages offer small payments at the beginning and then rise gradually and level off approximately 5 years. It’s recommended for buyers who expect income to rise significantly.