Sorting home mortgage options

A Consumer's Guide to the Mortgage Maze, by R.J. Turner. New York: St. Martin's Press. 330 pp. $14.95.

For a while there, it looked as though the 30-year, fixed-rate home mortgage loan was at least going to be able to hold its own with the adjustable mortgage. When interest rates were falling, many people who had been frozen out of the home-buying market came back, looking for fixed-rate loans that would protect them from another jump in interest rates.

But the banks and other lenders also want to protect themselves. So, while rates on fixed-term mortgages have been going up, rates on adjustables have been coming down, to make them more attractive. As a result, the ''spreads,'' or interest rate differentials between fixed- and adjustable-rate mortgages, have widened, to as much as three percentage points in some places. (On a $75,000 mortgage, the monthly payments at 13 percent would be $830.25; at 10 percent, they would be $658.50, or $171.75 less.) But if the lower rate is adjustable, a home buyer does not know what his payments will be in three years.

While some banks are widening the spreads between the two types of mortgages, other banks and savings-and-loans have simply stopped writing fixed-rate mortgages altogether.

Although an adjustable mortgage leaves the homeowner with uncertainty about what the monthly payments will be down the road, it does have one thing going for it: People who would otherwise not be able to afford the higher payments of a fixed-rate loan are able to start buying a home.

The array of ''creative'' home-buying options and their acronyms can be confusing. Not too many of us, for example, understand the differences between RAMs, SAMs, SEMs, GEMs, or ZRMs. Then there are wrap-arounds, buy-downs, rollovers, and sale/leasebacks.

What is needed, then, is a book that clearly and accurately describes these mortgage plans and the changes in the marketplace that spawned them. For the most part, this book does that.

I say for the most part because Mr. Turner, a real estate broker in Washington, D.C., occasionally leaves me wondering about the logic behind some of his statements. In a discussion of the savings-and-loan industry, for instance, he says, ''In order to act with force and direction, a number of S&Ls are joining together.'' He backs up this statement with a discussion of planned or proposed mergers among the three major trade groups that represent the S&Ls. The relationship between mergers of trade groups and mergers of the S&Ls themselves is not explained, and no examples of mergers of S&Ls are given.

Apart from such lapses, this seems to be a useful, well-written contribution to clearing up the confusion in this fast-evolving business. Turner supplies information the layman can understand about how creative financing plans work, their risks and rewards.

He also supplies some good background on what has happened to the housing industry in recent years: how the concept of housing as an investment has become as important as the concept of shelter; how the banking and savings industries have become more competitive in some areas and less competitive in others; how the definition of a ''house'' has changed as condominums have become more popular.

One of the new financing plans Mr. Turner likes is the growing-equity mortgage, or GEM. With this one, the buyer gets an interest rate that is two or three points below the current fixed mortgage rate, for the first year. After that payments can go up or down, with the new rate being tied to the Commerce Department's index of per capita disposable income.

While this may look like an adjustable mortgage, the advantage is that the extra money is used to pay off the principal, which means that the house is paid off sooner, perhaps in half the time. If the index falls, then the homeowners simply get to make smaller monthly payments. Either way, they come out ahead.

Another plan, one the author does not like, is called a reverse annuity mortgage, or RAM. With this one, a house that is owned free and clear can be used to borrow 60 to 80 percent of its value for a term of 10 to 20 years. ''Reverse'' means the lender pays the homeowner, not the other way around. The danger of this comes at the end of the loan term, or at the passing of the borrower (most RAMs are written for elderly people), when the loan must be paid back or the lender gets the house. Usually the debt can be repaid by selling the house, but if the home has not appreciated as expected, there can be some unpleasant surprises.

For those who decide to go ahead with a home purchase, there is a useful chapter on how to coMplete a mortgage application package, with such tips as a reminder that the buyer has a right to ask that all relevant papers be delivered 10 working days before the settlement.

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