That's my home town. Last time I visited an employee of a local developer was in my row on the plane, when I suggested it couldn't last she looked at me like I had suggest roasting her children on a spit.
"People who buy big homes don't use regular 30-year fixed(-rate) mortgages. The payments are just too high," said Rob McElroy, president of Boca Raton-based Family First Mortgage. "There are much better alternatives."
Well duh ... if the payment is too high, maybe you can't afford the house?
A related product, the deferred-interest or negative-amortization loan, reduces initial payments even more by letting borrowers pay only part of the interest they owe. These loans offer initial "teaser" rates as low as 1 percent, several points below the true rate of the loan.
The difference between the teaser rate and the true rate is added to your principal, so while the loan is in its deferred-interest phase, borrowers are actually going deeper into debt despite making regular payments.
Didn't they used to hang people for those sorts of shennanigans?
No similar magic can alleviate property taxes, which average about 2 percent of the purchase price (or $792 a month on a $500,000 home), but interest-only mortgages can soften the blow of trading up and are a major reason so many people are suddenly buying so much house.
Or, in the case of Jamey and Gregg Ackerman, so many houses.
Interest-only loans allow the Wellington residents to own four luxury homes: one in Lake Worth's Winston Trails community; and one each in the Wellington subdivisions of Olympia, Versailles and their current residence, The Isles at Wellington.
Renters cover the bare-bones mortgage payments, while the Ackermans sit back and let Palm Beach County's surging housing market make them rich, at least on paper.
"We paid $379,000 for the Olympia house, and it's valued at $740,000," said Gregg, who works in Muvico's Fort Lauderdale office. "The Versailles house was $408,000, and it's now worth $710,000."
Like most interest-only borrowers, the Ackermans intend to sell their homes before their loans' five-year, interest-only periods end. That's when payments balloon to make up for the delay in chipping away at the principal.
Gee do you think everyone else might be planning the same thing?
"First-time buyers are saying, 'Wow, if I don't buy today, I'll never have the chance.' They're running up their credit cards to make downpayments," said Metrostudy's Hunter.
"Today, we're buying houses like we buy cars, based on the (lowest) monthly payment," said Mark Eitel, managing partner of Palm Beach Gardens-based Schaffer Mortgage Corp. "But the scary thing is the average guy who works his fingers to the bone making $60,000 a year, and he cashes out his 401K to buy a home in expectation that prices will keep going up."
Hunter believes buyers looking to cash in on the real estate boom should bear in mind that the nature of a bubble, housing or any other kind, is that they usually burst.
"People have it in their minds that South Florida home prices always go up, but that's actually not true," Hunter said. Adjusting for inflation, he said prices of new homes actually went down in the late 1990s.
Adeimy remembers what can happen when a housing bubble bursts. In the late 1970s, when he was 22 and interest rates hit 12 percent, it nearly catapulted him into bankruptcy.
"I had all these properties. I got in trouble and couldn't keep up the payments," he said.
He gave his houses back to the bank then, and figures if the bubble bursts this time, he can do it again.
"The worst that can happen is we sell it for less than we paid," he said.
Welcome to Florida.
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