Archive for the 'Interest-Only' Category
Mortgage Giants To Rescue Distressed Borrowers
In the scramble to address the difficulties of home owners trapped in bad loans, help may be on the way.
From the Associated Press today:
MORTGAGE GIANTS MAY HELP BORROWERS
WASHINGTON (AP) - The heads of Fannie Mae and Freddie Mac said Tuesday the mortgage finance giants are developing new types of loans to help distressed borrowers with high-risk mortgages keep their homes at a time of rising foreclosures.
A key federal regulator also urged lenders to step in now and extend flexible terms to struggling homeowners.
The moves by the two government-sponsored companies, the biggest buyers and guarantors of home mortgages in the country, came in response to the turmoil in the market for so-called subprime mortgages, higher-priced loans for people with tarnished credit or low incomes who are considered greater risks. In recent weeks, the distress has roiled financial markets and stoked anxiety that it could spill over into the broader economy.
The companies’ initiatives were disclosed by their chief executives at a hearing by the House Financial Services Committee.
What solutions are they contemplating?
Rumors are that Freddie Mac saw this coming and has been working on a 50 year loan with an initial 10 year interest-only period. This would certainly smooth out the ride, assuming borrowers have the equity and income to qualfiy. .
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In Part II of the Creating Affordable Payments series, we looked at 40 and 50 year loans to see if the advertising claims about lower were true, and we found that these loans do not really help, and the overall interest cost is much higher.
In Part III , we looked at Intermediate ARMs to see if they were the answer to today’s most common challenge. Unfortunately, with the inverted yield curve in U.S. Treasury securities, the rate on a 5/1, 7/1, or 10/1 ARM is often higher today than the 30 year fixed.
So today let’s have a look at interest-only loans to see what they can do.
Four Great Reasons to Choose an Interest-Only Loan
Somewhere along the way, it’s been burned into our brains.
Interest-only loans are bad.
The endless Chicken Little cries of columnists and talk show hosts have scared a lot of people. If you bought recently, and if you got 100% financing, and if real estate values tumble, and if you have to sell, and if you took an interest-only loan…… you could be in trouble