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.
TrackBack URL for this entry: