Loans help buyers reach new heights

The San Jose Mercury reports:

Who could blame people for losing hope that they'll ever be able to afford a Bay Area home when ever-creeping interest rates are compounding the pain of sky-high home prices?

Don't sell those mad scientists of the mortgage industry so short, however. In an effort to squeeze monthly payments into stretched-tight budgets, more lenders are peddling mortgages with the security of fixed rates, the flexibility of interest-only payments and a chance to spread out payments 10 to 20 years longer than usual.

One big catch: These longer-term loans can cost you hundreds of thousands of dollars more in interest over the long haul.

But with home prices still rising despite signs of cooling in the real estate market, many cash-strapped borrowers need all the help they can get.

``The reality today is people have to look at these alternatives to make the finances work,'' said Alex Diaz Jr., vice president of Statewide Bancorp, a Rancho Cucamonga lender that in March unveiled what's believed to be the nation's first 50-year mortgage. ``It only benefits the homeowner because it gives him more options. Choices are good.''

It's not just the commercial lenders selling these increasingly popular loans, either. The state-funded California Housing Finance Authority -- which caters to first-time buyers with loans at below-market interest rates -- is on a record pace thanks to a 40-year loan introduced in March and an unusual 35-year loan that lets borrowers pay only the interest the first five years.

You like how the state of California has gone into the business of encouraging people to go into debt which they really can't afford? How ironic,Calfornia is one of the least affordable states in the country with one of the lowest homeownership rates, and this artificial leverage makes things much more unaffordable.