Mortgage Products Beyond the Empty Nest

Just one look at Dan and Barbara Nostros' Ridgewood, N.J. home tells you that the last thing this couple ever thought they'd do is downsize to a smaller house. Nearly 3,500 square feet with four bedrooms, the Nostros' home has the feeling of a warm cocoon that's slowly expanded over the 12 years the family has lived there. A kitchen with a large, central cooking island. Generous bedrooms with big windows and closets galore. A living room with terrific built-ins.

Everything seems to have its place -- but the Nostros. Ever since their 20-year-old left three years ago for college in Los Angeles, the family has been spending less and less time in Ridgewood. Two years ago, Dan and Barbara decided to rent a small home in Encinas; last year they also rented a pied à terre in Manhattan because Dan was spending so many nights working in the city.

Now the Nostros have sold their Ridgewood home, and are diving back into the market, but not without some trepidation. What's the right mortgage product for baby boomers who have a newly empty nest and are just starting to enjoy the good life?

We asked the What Works Now panel to sort out the kinds of mortgage products the Nostros should be considering and what financial products are best, given their lifestage and needs. As expert Regina Lewis says, the Nostros are in an enviable position, but when it comes to mortgages, the days of one-size-fits-all are over.

There are still plenty of options for consumers, although the number of products offered by the banks have somewhat decreased since the bad old days when negative option loans were offered by some lenders. The most common loan today, says Todd Dal Porto, Bank of America Home Loans Enterprise Sales Executive, is the good old-fashioned 30-year-fixed-rate loan that amortizes (or draws down to zero) over the life of the loan. Today, there are more options available on the traditional fixed loan: You now can get them in 25-, 20- and even 15-year durations.

The other major type of loan product available is a variable -- or adjustable rate -- mortgage, sometimes known as an ARM. In these mortgages, the interest rate is fixed for the initial period of the loan -- five, seven or 10 years. "There's typically a discount, a lower rate for that shorter fixed period," says Dal Porto. "But often people like the security of the fixed rate for that entire time."

So how do you know which you're a candidate for?

As Lynnette Khalfani-Cox -- a.k.a. The Money Coach -- says, first look at how long you're going to live in your new place. In the Nostros' situation, they're probably not looking to move any time soon. That much is obvious. If you're not thinking of moving in the next decade, buying a three-, five- or 10-year ARM probably doesn't make much sense.

But beyond the length of time the Nostroses are considering staying in their new home, Khalfani-Cox says the couple has other things to consider, like: How do they want to live? Since the Nostroses are thinking of moving either to New York or Los Angeles -- two of the most expensive markets in U.S. real estate, Cox says they should think long and hard about what kind of lifestyle they would have. "Will you travel more, will you see the grandkids a lot more?" says Khalfani-Cox. "What will your healthcare costs be during retirement? What kind of taxes are you likely to pay in some of those high-cost areas?"

Knowing how well the Nostroses have handled their finances until now, it's a safe bet that we're likely to find them kicking back in their new home pretty soon. They're on their way to figuring out What Works Now.

If you would like to explore some of the options of home loans mentioned in this article, or if you would like more tools and insights to help determine what works best for your unique situation, check out the online home guide by Bank of America Home Loans and the following guides from AOL Real Estate: How to Pick the Right Mortgage Product for You and How to Get a Low Mortgage Rate.


Want to learn more about home buying and home finance? If so, you won't want to miss
the rest of our discussion with Todd and Lynnette on

"What Works Now: Smart Moves When Buying a Home,"
created by AOL Real Estate in participation with Bank of America Home Loans.
Watch it now on AOL Real Estate.
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