Resources: Newsletter Articles: Do You Have The Wrong Mortgage?

Rock bottom mortgage rates are giving millions of Americans a chance to reduce their monthly housing payments. But instead of locking in some of the lowest rates in nearly 30 years, a surprising number of people are flocking to potentially risky loans including adjustable-rate mortgages and interest-only mortgages.

In previous low-interest environments, borrowers have jettisoned adjustable-rate mortgages in favor of more fixed-rate mortgages, which lock in the low rate. But about 30% of loan applications in early June were for adjustable rate mortgages, according to the Mortgage Bankers Association of America. That's a 76% increase from early November, when fewer than one-fifth of applicants wanted ARM's.

Some borrowers "may be going after the lowest rate and not realizing the interest-rate rish", says Jay Brinkman, an economist at the Mortgage Bankers Association, a trade group.

Selling mortgages has become a huge business for lenders, and they are doing everything they can to keep the good times rolling. Lenders compete for market share by introducing new flavors of loans designed to attract borrowers.

A growing number of lenders, for example, are now aggressively marketing so-called interest-only loans. These loans hold potential risks for borrowers. As the name implies, the borrower pays interest but no principal for as long as 15 years. If property values slide sharply, the borrower could end up owing more than the house is worth.

"On the other hand an interest only mortgage, if used wisely, can be a very useful financial tool. The flexibility that interest only loans provide enables borrowers to be more in control of their mortgage rather than the mortgage controlling them. Remember, this loan doesn't prohibit a borrower from paying principal, it just doesn't require it, says Roger Smith, La Salle Financial, Montclair.

sherrybenninger@grubbco.com

The GRUBB Co., 1960 Mountain Blvd., Oakland, CA 94611

Top of Page

©
Warning: date() [function.date]: It is not safe to rely on the system's timezone settings. You are *required* to use the date.timezone setting or the date_default_timezone_set() function. In case you used any of those methods and you are still getting this warning, you most likely misspelled the timezone identifier. We selected 'America/New_York' for 'EDT/-4.0/DST' instead in /var/www/vhosts/80/240791/webspace/httpdocs/sherrybenninger.com/res_wrong_mortgage.php on line 390
2024 Sherry Benninger. For informational purposes only.
No reprinting of this material is allowed without express written permission.

privacy policy