i heard yesterday that 54% of real estate housing in washington d. c. area is mortgaged on interest only variable loans.
They must be talking about new loans -- this is a new product.
Regardless, the issue is not the intererst rate, IMO, it's whether or not you have equity. If, for example, you put 20% down payment, what difference does it make if you have an interest only loan, you've still got equity.
It's the combination of no-money-down and interest-only that's bad for lenders, because the buyer has no incentive to stick around if things go bad.
If I was a first time buyer, with nothing saved up, and I was offered no-money-down, interest-only, I'd jump for it, because the interest deduction on taxes makes it cheaper than renting.
Also, even without paying down the principle you still get equity just from the increase in FMV.
We have a ridiculous amount of equity just sitting around untapped because we're too old fashioned to cash out, and too stubborn to lose our 5.25% fixed interest rate. (Would have been 5% if Chris hadn't been afraid to go with Lending Tree and tried to use our old lender -- he didn't want to go with an internet company. The old lender was too busy to answer his calls, so, eventually he did go to Lending Tree, but the rates had gone up in the meantime. ) |
