Interest-Only Mortgages Reviving by Jim Woodard on Creators.com

Recently

Bidding Wars for Homes Growing When there are a large and growing number of homebuyers and a minimal inventory of available homes, bidding wars are inevitable in the housing market. That's the situation in many areas of the country today, and the trend is growing. In many cases, …Read more. Is Another Housing Bubble Emerging? It's very unlikely that a significant housing bubble is forming, most experts say. For example, reports from Capital Economics and Redfin asserted no such bubble is forming — at least not on a national level. Capital Economics recently …Read more. Keeping Your Home Healthy Many homeowners are unsuspecting victims of medical problems — ranging from asthma attacks to lung cancer — caused by components and conditions in their residences. This was revealed in a new study by the Environmental Protection Agency …Read more. Spring: Season for Vacation Homes 'Tis spring, when homeowners' thoughts turn lightly to images of vacation homes. Sales of those properties are rising as they have been over the past two years. Vacation home sales rose 10.1 percent to 553,000 in 2012 from 502,000 in 2011, according …Read more.

Interest-Only Mortgages Reviving

Applications for interest-only home mortgages are on the rise. They are especially popular with investors or "flipper" buyers who hold title for a very brief time, or buyers who have trouble qualifying for a conventional mortgage.

An "interest only" mortgage is one where the scheduled monthly mortgage payment consists of interest only. The option to pay interest only usually lasts for a specified period, like 5 to 10 years. Borrowers have the right to pay more than interest if they want to.

If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal. The result is that the loan balance will remain unchanged.

Most lenders offer interest-only mortgages only to well-off borrowers because they are considered to be high-risk loans. For this reason, the interest rate and fees tend to be a bit higher than conventional mortgages.

Interest-only mortgages accounted for about 14 percent of private mortgage originations from January 2012 through October, according to the latest data from the real estate research firm CoreLogic.

Under new mortgage rules by the Consumer Financial Protection Bureau, lenders that continue to provide interest-only mortgages starting in 2014 could face greater liability in lawsuits filed by borrowers who end up in foreclosure, it was noted in an article carried by the National Association of Realtors.

"Lenders say they provide these loans only to lower-risk, affluent borrowers with significant assets. Some borrowers find these mortgages are more flexible, but they do come with risks. Borrowers will not build equity in homes with interest-only payments, and a fall in housing prices could leave borrowers owing more on the home than it is worth," the article stated.

Q: Is any action being taken to help borrowers with a delinquent mortgage?

A: Yes. The Federal Housing Finance Agency (FHFA) recently introduced a new tool to help seriously delinquent borrowers avoid foreclosure. Starting July 1, Fannie Mae and Freddie Mac servicers will lift loan modification barriers by offering eligible borrowers reduced payments without asking for financial or hardship documentation.

Through the FHFA's Streamlined Modification Initiative, eligible borrowers who are 90 days to 24 months past due will receive a solicitation offer with a trial period plan that lasts for three months. The offer will include a dollar amount for a new mortgage.

Q: From an investment perspective, is it best to purchase a home near access to public transportation?

A: That seems to be the case. A study released by American Public Transportation Association and the National Association of Realtors suggested homes in close proximity to public transportation were much more resilient when faced with price declines during the recession.

Data from the study found property values for homes near public transportation performed 41.6 percent better on average compared to other homes, it was noted in a DS News report.

"The study compared property values from 2006 to 2011 for homes located near public transit systems and homes that were in non-transit areas in five regions — Boston, Chicago, Minneapolis-St. Paul, Phoenix and San Francisco," the report stated.

Q: What is a Rent-to-Own transaction all about?

A: It's a rental or lease agreement (contract) with an option to purchase the property. The arrangement can be helpful for persons who currently cannot qualify for a mortgage loan but have a good potential for qualifying in the future.

However, there are downsides to such arrangements. The monthly rent is normally higher than rentals without the option. In some cases a portion of total rents paid are credited toward the down payment.

If the renter does not exercise the option or can still not qualify for a needed mortgage at the end of the lease term, the extra amount paid through the months is lost.

Q: How much are home prices rising?

A: The S and P Case-Shiller index, which tracks the 20 largest markets in the nation, showed the biggest year-over-year gain in prices since June 2006.

"This marks the highest increase since the housing bubble burst," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices as reported by CNN /Money.

In a separate government report issued on March 26, new homes sold at a 411,000 annual rate in February, down nearly 5 percent from the January sales pace but up 12 percent from year-earlier levels.

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.