The mortgage marketplace is going to get rougher before it gets easier for borrowers to avail themselves to interest only and option adjustable mortgages.
Interest-only and option ARMs are fairly complex mortgages. Typically, borrowers make artificially low payments for a period, such as five years. Afterward, payments shoot up to reflect current interest rates and the principal owed. Regulators worry that some borrowers lured by these mortgages’ initial low payments won’t be able to handle higher payments later. Lenders would then be at risk for loan defaults.
Interest-only loans and option ARMs have likely contributed to the surging housing market, because they let borrowers buy more expensive homes than they normally could afford. Non-traditional mortgages have become more widely available as companies have rushed to meet demand. Quicken Loans, for example, began offering option ARMs this year and interest-only loans two years ago.
If non-traditional mortgages become scarcer or if borrowers turn away, “That could have a cooling effect” on the housing market, says Glenn Costello, a managing director of Fitch Ratings.via Yahoo
We bought our first home with an interest only mortgage and it worked out great as it allowed us to get into a much better home than we expected to. We sold in 5 years and the appreciation was enough that any principal payments would not have effected our income to greatly.
However, our next home which we plan to be in for a good long time, was financed with a traditional 30 year fixed mortgage. Made much more sense for the long term, and we did not have to worry about variable interest rates.
No related posts.
