Wouldn't it be nice if somebody came up with a simple way to compare various types of mortgages side by side--not only their starting payments, but what they'll cost you, say, five years from now?
Somebody has. Susan M. Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School, has developed a so-called U.S. Mortgage Index in cooperation with Genworth Financial, an insurance holding company. Genworth issued a press release Mar. 27, but I didn't know about it until I saw an article yesterday in The New York Times. (Thanks, Bob Tedeschi.)
These are five loans for a $200,000 house. You can go to the Genworth website here for details on loan rates, assumed home appreciation, etc., etc.
30-year fixed-rate loan with 5% down payment and monthly mortgage insurance
First month: $1,361
61st month: $1,231
30-year fixed-rate loan with single financed premium mortgage insurance
First month: $1,269
61st month: $1,269
80-15 combo loan (piggyback)
First month: $1,299
61st month: $1,402
10/1 interest-only adjustable-rate mortgage
First month: $1,172
61st month: $1,277
Pay option ARM
First month: $739
61st month: $2,109
The first thing that jumps out from Wachter's index is that a pay option ARM is the mortgage industry's answer to the Molotov cocktail. Your payment triples in five years! If you didn't know how dangerous pay option ARMs were already, these numbers should make it clear.
A more subtle point is that paying mortgage insurance (as in the first two choices) can be a smart alternative to getting a piggyback loan (the third choice).
This website is to get the big picture on different types of loans. For precise comparisons for the loan you need, you should talk to a trustworthy mortgage broker or turn to one of the many online calculators like mortgage-cal.com, the Bankrate.com offering, or HSH. Apologies in advance to the many other worthy calculators I didn't mention.