Will the amount of foreclosures grealty increase in a few years when the interest only loans end?

Answer 1

It's starting to happen right now, but expect the big wave to start next year. It's actually worse than you illustrate. The negative amortization loan

http://www.danmelson.com/posts/1147465942.shtml

started getting pushed hard as a "solution" for people who wanted to buy more house than they could afford in late 2003. It got sold a frightening number of times to people who didn't understand what they were getting themselves into. I haven't done any, but according to the local board of Realtors, they were over forty percent of all new purchase loans. Statistically speaking, the time frame from three to five years after initial funding of the loan is when the highest number of foreclosures happen (most people refinance about every two years, which leads me to believe it's people who cannot afford to refinance who are the real risks!)

Three years out from late 2003 is the end of this year. So that's when we can expect it to really start.

Answer 2

Hello -

Why do you believe that interest only loans will end? The average home owner stays in their property less than four-years.

The question everyone should ask when looking at different loan products is for howlong will they need to borrow the money.

There are many myths about interest only loans and further in my reply, I will provide a link to a FREE report which will help give some guidance.

How would you like a mortgage that either significantly lowered your monthly payment or allowed you to buy a lot more house?

An interest-only mortgage can do either, and lenders increasingly are touting them as the answer to many borrowers' prayers. Whether these loans turn out to be a blessing or a curse, though, depends a lot on who's doing the borrowing:

If you're a disciplined investor, good with money, a bit of a risk-taker and not buying more house than you can handle, an interest-only mortgage could work great for you. Read a FREE REPORT at

http://www.freemortgageinformationsoutherncalifornia.com/loan_secrets.aspx

If you're not all of those things, you probably want to stick to a more plain-vanilla mortgage.

It's a bad idea for someone who can barely afford the house they're buying, If you're using the extra money to put food on the table, it's better to get a (more conventional) loan.

Like regular mortgages, interest-only loans come in many different forms. The rate can adjust annually or be fixed for a while (usually five, seven or 10 years) before becoming variable. The interest-only portion may end after the fixed period, or it may continue for a few more years before principal payments are required. As with other adjustable-rate mortgages, there are typically caps that determine how much your interest rate can rise each year and during the life of the loan.

As for more foreclosures in the future. In the USA we have more home buyers than ever before. Therefore we will continue to have a record number of defaults on mortgages. However, you need to calculate the percentage of defaults to the number of home owners and you will find the variance truly is no different.

Hope that helps.

Answer 3

A foreclosure is when the banks take the home back, most notices of defaults filed never become foreclosures.

Since the real estate market crashed in the early 90's banks changed the way they calculate and cast adjustable rate loans. The last fallout of real estate was largley due to interest rates on homes adjusting as high as 17%. Today the rates have caps of 9-11%. When a home goes into foreclosure the owners get burried in letters from investors who offer to take over the loan if they surrender the home. Thus saving the owners from further damage to thier credit, legal fees, etc. Banks may begin to accept short sales, borrowers find a buyer who makes an offer to buy the home for less then the bank is owed. Banks can write off the loss, avoid thier own legal fees and not have to incur additional costs to take possession and sell the home.

Answer 4

Its called Payment Shock. Word you can throw around and people will listen. Payment Shock is what happend when a 4.75% interst rate that you locked in at two years ago interest only and now the ARM is due within 2 days. Well in 48 hours your new payment if you haven't seen it yet in your mortgage statement is at the prime rate today which is around 6.5%. Also interest only is not an option on some of these ARMs when there due so they take the payment to the full 30 year fix term. Thats crazy. Could add another 2-3 hundred dollars to your payments. Also the Neg-Am loan or "Option Arms" people paying the lowest payment (ex. 1.25, 1%, .50%) these people have accured a balance at the end of there loan that is now due. So "Payment Crash" is what they are going to expierience. So for those who are not paying attention to there ARM terms and Payment Shock and what I call "Payment Crash" come due than yes its a good time for investors and possibly you to come in and get that 500K home for 400k. Start Shopping and Local Paper is a good source.

Answer 5

You better believe it. Also with interest rates rising anybody with an ARM with be feeling it in the pocket as well.