Home buyers will find it easier to get a new kind of mortgage that is paid off in no more than 15 years under a program announced this week by the Federal National Mortgage Association.
The mortgage involves a fixed interest rate, which may be slightly less than a market rate, and graduated monthly payments.
Known as growing-equity mortgages (GEMs), or rapid-payoff or equity-building loans, they involve a yearly increase of between 2 1/2 and 7 1/2 percent in monthly payments, depending on the plan. All of this increase is used to pay off principal, meaning that the mortgage is paid off in anywhere from 9 years and 10 months to 15 years, according to how much of a yearly increase in payments is chosen.
For example, on a mortgage of $75,000 at a fixed interest rate of 16 percent, the buyer's payment would start at about $1,000 a month. If the plan involved a 2 1/2 percent increase a year, the payments would go from $1,000 the first year to $1,025 the second year, would rise to $1,104 by the fifth year, $1,249 the 10th year and $1,413 the 15th year, when the mortgage would be paid off.
The tax deductions would be the same throughout the 15 years as if the mortgage were a traditional 30-year one, a spokeswoman for Fannie Mae said.
Fannie Mae announced that it will start buying these types of loans in September, providing the first national source of funds for these mortgages. The federally chartered corporation helps to put funds into the mortgage market by buying certain types of home loans from primary lenders such as savings and loan associations or banks. Fannie Mae's action will provide an instrument for investors such as pension funds to make investments in these loans.