From Bankrate:
In upcoming years, many homeowners will sink
In the next couple of years, a combination of rising mortgage interest rates and falling home values could plunge thousands of homeowners underwater.
Being underwater means owing more than the house is worth. It’s an especially risky situation for borrowers with interest-only mortgages and pay-option adjustable-rate mortgages. Some might be able to refinance or get through hard times by living frugally. Others will have to sell, possibly at a loss. Still others will lose their houses to foreclosure.
Two groups of borrowers should look ahead to see if they’re heading toward a reef that could sink them.
Homeowners most at risk are those who are making minimum payments on interest-only mortgages. Not all of these folks are at risk. The ones who should especially watch out are those who bought homes in the past year or two in markets where house values are falling, and who made no down payment or a minuscule one.
The other group consists of borrowers who are making minimum payments on pay-option ARMs on homes purchased within the past two years with a down payment of 10 percent or less. Pay-option ARMs are adjustable-rate mortgages that allow borrowers to decide how much to pay each month. Under some conditions, the minimum payment doesn’t even cover that month’s interest, so the loan balance rises.
According to an analysis by Comstock Partners, a Yardley, Pa.-based asset-management company, 70 percent of borrowers who took out pay-option ARMs in the past year owe more now than they did when they got the loans.
How much more? Comstock estimates that 15.2 percent of 2005 home buyers owe at least 10 percent more than their houses are worth. Those buyers made minimum payments on pay-option ARMs, or their home values dropped or both.
“Comstock estimates that 15.2 percent of 2005 home buyers owe at least 10 percent more than their houses are worth. Those buyers made minimum payments on pay-option ARMs, or their home values dropped or both.”
wow. 15.2%
I would suspect that they rounded down.
SAS
Many are going to hate real estate as an investment when this ends.
15.2% doesn’t cover selling costs. That’s only the paper losses for those that manage to hold on. At some point the math becomes inexorable. Even with new BK laws it is going to be easier to walk than to suck it up and go on. This creates a spiral of doom dragging down everyone close to these people.
“70 percent of borrowers who took out pay-option ARMs in the past year owe more now than they did when they got the loans.”
……..and it doesn’t make more sense to rent at this time??? Don’t complain that the sellers are not accepting your lowballs. They are actually doing you a favor.
……..and it doesn’t make more sense to rent at this time??? Don’t complain that the sellers are not accepting your lowballs. They are actually doing you a favor.”
So true.
Lol if they accept my lowball they will be makin me a favor.. But they bever will – the only way to get the price I want is to go to foreclosure auction…