Interest-only Loans Becoming Extinct
If youre looking to purchase a home or refinance a mortgage Middletown
, your options are getting a bit slimmer.
Interest-only loans, already a rarity after the collapse of the subprime mortgage market, are just about to dry up completely. They wont totally disappear, but getting one will go from difficult to extremely hard.
Freddie, Fannnie backing out
Whats happening is that Freddie Mac and Fannie Mae, the government-supported secondary lenders who insure most of the mortgages made in the United States, have said they will no longer purchase interest-only loans after Fall 2010. Given the time it takes these developments to work through the system, you can expect that lenders are already starting to shut the pipeline down.
Thats too bad, because interest-only loans Middletown can be an effective financial tool for qualified borrowers who use them correctly. The problem was that, during the housing bubble, they were issued to many borrowers who could never afford them unless housing prices continued to increase. When the economy and housing market soured, many of loans defaulted and continue to do so.
Those losses are why Fannie and Freddie are getting out of the interest-only loan business. Many private lenders have already done so as well.
Advantages of an interest-only loan
At first glance, an interest-only loan may sound like a dumb idea. You take out a mortgage pay only the interest for the first few years, typically five or 10. At that point, the loan resets to a fully amortizing loan, meaning you have to pay off the entire principal, plus the interest, over the remaining 20 to 25 years of the loan. Naturally, thats going to make your payments go through the roof.
But it can work quite well for some borrowers, particularly in a normal market where prices are stable or gradually appreciate. In particular, it can be a good choice for someone who doesnt plan to stay in a home more than five or 10 years, and has no desire to ever own the home free and clear.
In that event, an interest-only loan Middletown can allow you to stay in the home for next to nothing because mortgage interest is tax-deductable. Sophisticated investors sometimes use interest-only mortgages to allow them to invest their money elsewhere, rather than using part of it to pay down mortgage principal on a home they never plan to own outright.
by: JT
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