Hawaii tries new type of mortgage

Aloha, home buyers! Hawaii has decided to pioneer a new form of mortgage, hoping to put vigor in its housing industry. If the mortgage, known as a ''growing-equity mortgage,'' catches on, it could spread and revitalize the national mortgage market, Merrill Lynch & Co. maintains. The firm is the state's investment banker.

The growing-equity mortgage adjusts the mortgage payments for inflation by increasing the homeowner's monthly payments 3 percent each year for the first 10 years of the loan. The increased payment, however, goes to pay down principal, not interest. Thus, the loan protects the lender from inflation and is paid off sooner - and is cheaper than a variable-rate mortgage, which is a selling point to borrowers.

''We believe this type of mortgage will help the average home buyer, since the rates will be lower than the standard mortgage rate,'' says Lawrence M. Johnson, executive vice-president of the Bank of Hawaii. Currently, a borrower pays 181/2 percent at the Bank of Hawaii for a mortgage. But under the growing-equity mortgage, the home buyer will pay only 127/8 percent. The rate is lower since the term of the loan is shorter. The loan is paid off in 16 years.

Gov. George R. Ariyoshi said in an interview that he believes Hawaii is willing to experiment with the new type of mortgage, ''because it is an island state and gets a chance to look at itself and also because it's a young state and not afraid of innovation. We're willing to make accommodations.''

Other states will follow in the near future, says Judd S. Levy, managing director of the Merrill Lynch White Weld Capital Markets Group. Florida will soon offer the mortgages, as will Arkansas. Mr. Levy said Merrill Lynch is also developing growing-equity mortgages for banks and thrift institutions which will use other adjustment factors in addition to the 3 percent annual payment increase.

The Aloha State has pioneered the mortgages through the Hawaii Housing Authority, which successfully floated $20 million worth of tax-exempt bonds for this purpose last Friday.

The authority will purchase loans from qualified lending institutions including various savings banks, commercial banks, and real estate finance companies, which in turn have lined up mortgages for 754 proposed units on the islands. Some of the units are being built by public agencies. Some 280 units, the Koolauloa housing project, are being developed by the City and County of Honolulu. The County of Maui will build 58 houses.

Others are private developments, such as the Leilehua, a 64-unit condominum built by Leilehua Parters, and 240 single-family houses being built by Amfac Property Development Corporation. Most are middle-income housing with price tags ranging from $57,850 for the Koolauloa housing to $85,000 for the Amfac houses.

There are certain restrictions. The borrower can't have owned any property for three years before buying and must be able to move into the new house in 60 days.

The new mortgage plan has some definite advantages. The home buyer knows exactly what his payment is over the life of the loan. ''The homeowner can sleep at night,'' Mr. Levy says, ''since he knows that every year for the first 10 years the monthly payment will increase by 3 percent. After that the loan payment remains the same.'' Thus, on a $50,000 loan, the first year's monthly mortgage payment would be $550.90. By the second year it would be $567.54 and by the 10th year, $718.96. But if the borrower holds the growing-equity mortgage to maturity, the interest over the life of the loan will be less than a standard 30 -year mortgage. On the $50,000 loan, the interest payments under a growing-equity mortgage would be $74,345.37, compared with $148,467.50 under a standard 30-year mortgage. But since interest is deductible from federal taxes, one of the tax reasons for buying a house is reduced.

For years, real estate was a great investment in Hawaii. As Mr. Johnson from the Bank of Hawaii notes, ''There is only a limited supply and an increasing demand.'' This year, however, with mortgage rates skyrocketing, it's a buyers' market. Johnson points out that the real estate bubble didn't sag quite as it did on the West Coast, but there is little doubt prices have out.

One sign of slowdown in Hawaiian real estate is the cement industry. Two cement plants with a total capacity of 600,000 tons are only operating at 60 percent of capacity. One of those plants, that of Cyprus Hawaiian Corporation, is owned by Standard Oil of Indiana. For years, Standard Oil counted on the cement plant as a customer for oil from its refinery on the islands. But with the sharp rise in oil prices, the plant has shifted to coal. Now, in the middle of a construction slump, and with the plant no longer a customer, it's for sale.

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