A new 35-year mortgage will cost you tens of thousands of dollars more in interest than a conventional 30-year mortgage over the life of the loans, but the special loan is packed with enough attractive provisions to offset that drawback.

Beginning with nothing down, five years of interest-only payments and a low fixed interest rate of 5.25 percent (as of this printing) that doesn't change for the life of the loan, the mortgage could be a Godsend for those who otherwise couldn't qualify for a mortgage, want a larger home, or seek a better home-buying location where homes cost more.

"It's continuing evidence that lenders and government agencies will do whatever it takes to spur the housing market and allow more people to become home buyers and help the economy," said Rick Pelleriti, a mortgage planner with Lawson & Associates in Campbell, CA just hours after an industry orientation meeting to discuss the new program.

"It's certainly something I'd recommend to some of my clients," he added.

California Housing Finance Agency (CalHFA), an affordable housing bank that makes below market-rate loans through the sales of tax-exempt bonds, recently announced the Interest Only Plus loan for qualified first time home buyers in the Golden State.

"Qualified" is the devil in the details.

Eligibility requirements will eliminate many Californians.

To qualify, California home buyers must:

• Be a first-time home buyer (considered anyone who hasn't owned a home in the past three years), unless the home is located in a federally designated Targeted Area (U.S. Census tracts where 70 percent or more of the families have incomes no more than 80 percent of the state's median family income) and occupy the property as the primary residence.

• Meet CalHFA-defined income limits, which vary by county from a low of $31,250 for a family of one or two, to a high of $104,440 for families of three or more. Buyers must have a credit score no lower than 620.

  Buy a new or existing home within CalHFA's price limits, which vary by county from a low of $204,333 for both resale and new homes in several of the state's least expensive counties, to a high of $811,615 for resale homes in more expensive areas.

If you pass muster, here's the most you can get out of the Interest Only Plus:

A 5.25 percent fixed-rate mortgage (as of this printing); 100 percent loan-to-value mortgage; interest-only payments for the first five years (taxes, home owners insurance and mortgage insurance could be required and included in all payments); followed by 30 years of mortgage payments with interest and principal; a 1.5 percent origination fee; no discount fees and the option for a "silent second" mortgage -- with a balance not due unless the home is sold, or the loan is refinanced -- to help cover a down payment or closing costs. Debt to income ratios can be as high as 45 percent.

CalHFA, says on a $300,000, 100 percent loan-to-value mortgage, the current monthly payment with a 5.25 percent rate would be $1,312.50 for the interest-only, first-five-year term of CalHFA's 35-year loan, compared to $1,656.61 in principal and interest on a conventional 30-year loan with the same rate. The CalHFA loan payment would include both principal and interest and the amount would move up to $1,656.61 after the first five years.

Ken Giebel, director of marketing at CalHFA, says you'd pay about $79,000 more in interest over the life of the CalHFA loan compared to a conventional mortgages.

The grabber is the $344.11 savings each month, but there's more.

"The borrower is not required to pay the minimum payment. He or she can also pay the principal if they wish to do so," said Esperanza Creeger, with American Home Mortgage Corp.

"But the 35-year term increases the borrowers ability to qualify to get a home, which is so important in high-priced markets," Creeger said.

Published: April 8, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.