Guess what? We haven’t seen the last of the impact of “Creative Financing”. In 2007, ten years ago, the lending industry was pushing a loan that made it easier to buy a bigger home than one that a buyer might otherwise be qualified to buy. By structuring a 30 year loan into interest-only from 0 to 10 years, the payments would be lower and more easily managed. Then from 10 to 30 years, the borrower would start paying down the principal presumably under the assumption that the borrower would be making more money ten years later. The idea was that the buyer could get into a larger home by having lower payments the first third of the loan. It helped many people out who either were able to refinance into a 30 year fixed principal loan or those who already sold. The issue is that some of those borrowers still holding those loans are just now getting notified that they need to start paying a principal payment in addition to the interest they’ve been paying. Plus, that principal, instead of being amortized over a normal 30 year term, is compacted into 20 years which makes the payment even higher.
Okay. So what are the options for those people facing this dilemma? They can:
- Pay the new monthly mortgage which will be significantly higher than their current interest-only payment.
Let’s take a walk through these. Paying the new higher payment could be a stretch, but it’s an option. Refinancing is a great idea and the one that is probably the preferred option for many homeowners. Lenders are starting to get people coming in who are able to successfully refi, but they are also finding there are people coming in who don’t have the income or equity necessary to do the refi. Good lenders are helping these homeowners find ways to pay down some of their principal if they don’t have the equity to refi so talking to a good one, is essential. Then, there’s the last option which probably isn’t the preferred option which is to sell. For folks that want to sell, the very fortunate part is that the market is strong and inventory is very low.
This financial reset that’s brewing finds many in the same boat. Lenders say 2007 was the high water mark for these type of loans. I have a great team including great lenders so if you know someone who needs one, please don’t hesitate to reach out to me. Whatever your real estate goals, my team cares and is committed to helping you reach them! Contact us for more information.