Oh the Mess that Interest-Only Mortgages are Creating

My friend, Ben, over at the HousingBubble blog has posted an article titled One-Two Punch Awaits I/O Borrowers. This part of the article really bothers me:

Bill Callanan expects to soon be contacting clients who got into 5/1 interest-only loans in 2003 and recommending that they consider refinancing into new interest-only loans to avoid higher interest rates. ‘It’s two years later, and we’re seeing interest rates rise. Stop the bleeding now,’ he said.

I’m sure the mortgage brokers will be all too eager to “help” people refinance. I’m sure they will make a killing.

Read the article and then ponder JLP’s Point of the Day:

Stay away from interest-only mortgages!

9 thoughts on “Oh the Mess that Interest-Only Mortgages are Creating”

  1. I love Ben’s blog. It is amazing that the symptoms of a bubble (or at least a problem) that are dismissed by the media and real estate industry as happening in only a few isolated areas are happening all over.

  2. Frankly I think the biggest beneficiaries of the Interest Only Loans will be the legal profession. Many people will have no choice but to file for bankruptcy, combine that with new bankruptcy laws that require debtors to climb more legal hurdles and it is a win win
    for lawyers.

  3. I’m really worried that our friends are going to really take a bath on their interest only variable mortgage. I tried so hard to tell them that at 5.75, money was cheap and they should lock it in.

  4. A savvy investor would wait until the bottom fell out of the market, and then pick up distressed properties at a great price. Of course, knowing when the market is bottoming out is the tough part.

  5. Sam,

    That’s exactly what some people will do. That’s why the rich get richer and the poor get poorer.

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