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Hawaiian Mortgages: Owning a Piece of Paradise
The draw of owning a home in Hawaii is not hard to understand. The Pacific Ocean is responsible for the mild temperatures and scenic views that make Hawaii an irresistible place to live for those who can afford it. While the price of single-family homes and condominiums have skyrocketed in recent years, most analysts attribute this to the cyclic nature of the Hawaiian housing market, and predict a stable market in 2006 favorable to both buyers and sellers. Living in paradise is a realistic option for many, provided that you carefully consider the buying options available to you, including an affordable mortgage.
What Is There to Consider When Applying for a Mortgage?
Hawaii’s status as a popular vacation spot profoundly affects its housing market. Home prices fluctuate depending on the number of tourists and tourist dollars coming into the islands. For example, high-priced condominiums on premium beachfront property are going to become suddenly more affordable if tourism drops sharply due to stress on the market from world events or severe weather. Therefore, it is important to keep in mind what kind of home you are looking to buy. A free standing home built for constant long-term occupation will probably require a different mortgage than a vacation condo purchased as a short-term investment.
What Kinds of Mortgages Are Available in Hawaii?
Most Hawaiian lenders offer traditional fixed-rate mortgages in 10, 15, 20, or 30-year plans, as well as Adjustable Rate Mortgages (ARMs) and Interest Only Mortgages (IOs). Fixed-rate mortgages offer the most predictability, as the interest rate at the beginning of the mortgage is guaranteed for the duration of the loan. Adjustable Rate Mortgages recalculate the interest rate on the mortgage periodically, usually every year, though some lenders offer plans that keep the introductory rate for 3, 5, or 7 years before starting to readjust the rate annually. Interest Only mortgages are a relatively new phenomenon that offers lower payments for those looking to postpone paying the principal or who anticipate refinancing soon. An IO mortgage allows the buyer to pay only the interest on the loan for a fixed amount of time, usually 10 years, before starting to pay off the principal. While this plan offers initially low rates, the total interest paid over the life of the loan will be greater than with other plans.
Steps Toward Finding the Appropriate Mortgage in Hawaii
Consider how long you intend to keep the home, and for what purpose. ARMs are more risky than fixed-rate mortgages, but if the buyer does not anticipate rates rising and intends to sell soon, this may be the best option. Get quotes from multiple lenders to compare. A good place to start is the local newspapers, which publish general lender rates in print and electronic form. Rates are determined partially by credit score, so check yours with one of the three major credit bureaus before applying with a lender. To keep your credit score in the best possible range, it can be helpful to keep credit balances low in the two months prior to applying for a mortgage. Also, be wary of rates advertised at surprisingly low rates. A 1% mortgage can end up costing more than a traditional mortgage due to a “negative amortization” clause that leaves the buyer owing more than was originally borrowed. As is the case everywhere, when purchasing a home in Hawaii it is a good idea to obtain the services of a reputable mortgage consultant who can explain the options in detail.