The housing market, which has been becalmed by high interest rates, received some fresh air Wednesday. The Federal Home Loan Mortgage Corporation, in conjunction with with Merrill Lynch & Co. and Salomon Brothers Inc., said it would work with mortgage lenders across the country in providing $500 million in growing equity mortgage loans.
In the program offered by the Mortgage Corporation, homeowners' monthly payments increase by 4 percent per year, with the increase applied to principal, not interest. According to Philip R. Brinkerhoff, president of the Mortgage Corporation, a growing equity loan reduces the interest cost to the homeowner by up to one-half, compared with equivalent 25- or 30-year conventional fixed-rate loans. Since the loan is paid off quicker, growing equity mortgages are more attractive to investors.