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Interest only mortgages
This is even crazier than adjustable-rate mortgages (discussed previously here and here): in southwest Florida interest-only loans (in which the holder only pays interest, no principal for a certain amount of time) constitute up to 75% of mortgates being taken out right now. The article says that these loans work for these reasons:
- Most interest-only mortgages are going to investors, who are speculating in the local real estate market
- Homes in that market are appreciating rapidly
- The average life expectancy of a loan in the area is currently 2-3 years
So, basically it's a speculator's market--a housing bubble. As long as everything stays the same, it will work, but as soon as any one factor changes, the whole house of cards is likely to come down.
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