As interest rates creep up, first-time buyers are finding that specialty loans are in many cases the key to getting them the home they want.

The California Housing Finance Agency, CalHFA, introduced an interest only PLUS loan in March of this year that is marketed exclusively to first-time homebuyers. According to the agency, any person who has not owned a home in the last three years can apply for the loan.

The interest only PLUS product is a 35-year loan. The first five years are interest only and then at payment 61 it turns into a 30-year fixed mortgage.

"The thing that's different about it and makes it unique -- there is nothing in the industry like it -- is the interest rate never changes. So you qualify on the interest and you know at payment 61 how much your payment is going to go up," says Ken Giebel, marketing director for CalHFA. This, of course, differs greatly from the many interest-only loans which may have an adjustable rate mortgage after a specified time period.

Since the program started in the spring of this year through mid-November in San Diego, "CalHFA has done a total of 693 loans … 33 percent (232) were interest only PLUS for a total of almost $64 million dollars interest only PLUS loans," says Giebel.

Statewide CalHFA has done more than 1,500 interest only PLUS loans for a total of $434 million.

Another huge benefit in choosing this type of loan is the interest only PLUS loan program is coupled with a mortgage payment protection product also introduced by CalHFA earlier this year.

"Often, people hesitate to purchase their first home because they fear that if they lose their job they will lose their home as well," says Theresa Parker, executive director of CalHFA.

HomeOpeners allows borrowers who use conventional home mortgage products from CalHFA to have their monthly mortgage paid for up to a six-month period if they lose their job.

"HomeOpeners offers peace of mind to our borrowers and will help make homeownership a reality for Californians -- all at no additional cost," says Parker.

"The HomeOpeners product is a very attractive tie-breaker because it's at no cost. So when the loan officers mention that added benefit, it's a big deal to a first-time homebuyer ... . It seems to make the difference in getting a CalHFA loan versus a Bank of America, Wells Fargo or Countrywide loan," says Giebel.

According to Giebel about 85 percent of the agency's new conventional loans are also getting the mortgage payment protection.

"That protects [buyers] should they become unemployed. We'll make their house payments up to $2,500 up to six months or six individual periods during the first five years of the loan. It doesn't matter if it's on the 30-year conventional or if it's 100 percent loan-to-value or on the interest only PLUS product," explains Giebel.

On the horizon for CalHFA is an even longer mortgage to help lessen the effect of rising interest rates.

"There's more 40-year loan business being written today than there was 12 months ago. We're investigating, at this point, adding it to our first mortgage portfolio," says Giebel. Other banks already have these loans but, according to Giebel, until now they haven't been used as much as other loan programs because interest rates have been so low.

"But as interest rates start to go up the lower payments can help some people qualify especially in a high-cost state like California," says Giebel.

Published: December 26, 2005

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Phoebe is a writer, speaker, and author. She is the Director of Business Development for Quality Service Certification and a trainer in customer service for the real estate industry. She is a Realtor with The Guiltinan Group, a division of Prudential California Realty. Her articles, feature stories, and columns appear in various publications including The Coast News, Del Mar Village Voice, and Rancho Santa Fe Review in San Diego. Phoebe worked for KGTV/10News in San Diego as a Newscaster, Reporter and Community Affairs Specialist for more than a decade. Phoebe's writing is also featured in Donald Trump's book: The Best Real Estate Advice I Ever Received. She is the author of If the Trash Stinks, TAKE IT OUT!: 14 Worriless Principles for Your Success. Contact Phoebe at 858.259.3646 or . Visit PhoebeChongchua.com for more information.