A key point. These 'creative' solutions, such as loans which initially have interest only payments, have yet to be tested by a tough market.
A key point. These 'creative' solutions, such as loans which initially have interest only payments, have yet to be tested by a tough market.
It will be interesting to see what happens when those paying their 4.50-5.00% 3/1 rates have their loans adjust to 6.50-7.00%. On a $200,000 IO loan, someone paying 4.50% at a payment of $750, the new rate will most likely be 6.50%, which will jack up the new payment to $1083, unless of course the borrower has used the extra money to pay principal down. On a $300,000 loan, the payment will increase $500 per month. And if they have to repay principal, the payment will increase $860 per month. It will get even uglier with the MTA loans (aka option ARM's), where there will be negative amortization. When the negative amortization reaches a certain point, the borrower has to repay the principal at the higher interest rate. This most likely will increase the amount of foreclosures which in turn will have to bring down home prices. The new payments will also have to have a dramatic affect on the economy as higher payments eat up any disposable income. I'm glad I'm renting right now.