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WGBH Greater Boston: Interest Only Loans
ForeclosuresMass co-founder Jeremy B. Shapiro is a guest on WGBH's Greater Boston on July 21st to discuss Interest Only loans in Massachusetts.
Description of show from Greater Boston:
In 2002, only 5% of Massachusetts’s homeowner loans were
interest-only. In 2004, 28% were interest-only and the numbers
are going up.
Last Friday Dani Chedid, owner of a small construction
company, took a risk and bought his $750,000 dream house in
Lexington. Carrie Richards, a 29-year-old event planner, says she
is also willing to roll the dice to realize her dream of owning
her own home.
What both buyers are betting on is an interest-only mortgage.
Here’s how it works: after making a down payment on a home,
a buyer takes out a mortgage but only pays the interest on the
loan. James Madigan of Leader Mortgage says because principal
payments can be delayed for up to 20 years, it’s an
attractive option for a variety of buyers.
* Next 37 17 investors only!
“There’s a homebuyer with uneven income. Their
income comes in in chunks, self-employed individuals whose income
isn’t as regular as someone’s on a salary. Then on
the other end of the spectrum is the first-time home-buyer who
can’t afford what the principle payment would be on the
amount that they need to borrow,” says Madigan.
One
economist is concerned about the increased number of
interest-only borrowers. “For those people, its taking
added risk - to the housing market and to the banks and to those
individuals,” says economics professor Karl Case of
Wellesley College. Case also says that after the interest-only
period of the loan is over, borrowers may be hard pressed to pay
off their principal loans.
He adds, if the market takes a dive, they could be in even
bigger trouble. “First of all, if you have to move and the
value of property is not sufficient to pay off the loan,
you’re under water. There might be a foreclosure,”
says Case.
Despite the risks, both new homeowner Dani Chedid and
prospective buyer Carrie Richards say they’re confident
about using interest-only mortgages to move into Boston’s
housing market. “If the house builds its equity that its
been doing over the last few years, 10-15% every year, I’m
golden,” says Chedid. “I want to be part of the
action and I feel that the interest-only loan gets me
there,” he adds.
One perspective that is, no doubt, music to the ears of
realtors and lenders all around.
Originally broadcast July 21, 2005
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