Interest Only Programs

There have been many rumors floating around between professionals regarding the future fate of agency loans, namely Freddie Mac and Fannie Mae servicers. After all, if we're honest about these two entities, we are in agreement that they are in need of a drastic overhaul and could perhaps even be disbanded for the benefit of all (a different post - perhaps later today).

To put a number on it about 90% of loans originated in the market right now are agency loans. That's 9 out of every 1o loans! Kind of scary considering it was not too long ago that our Federal Government siezed Fannie and Freddie because they were in jeopardy of collapse due to "toxic assets."

This unprecedented move sent shockwaves through the marketplace. If what was said about Fannie and Freddie was true a return to traditional products was necessary to protect the fragile real estate market. In fact it was last month that I wrote a post discussing the possibility that Fannie and Freddie were considering reducing the programs offfered to only 15 and 30 year fixed programs. In other words Adustable Rate Mortgage programs would no longer be offered agency programs. Needless to say this has not happened; in fact to many mortgage professionals' surpirse recently agency interest only programs have been pushed on us from various wholesale lenders representing the agency market.

This is incredibly interesting considering, it was these more risky and exotic programs that led many homeowners into trouble. Regardless this is something to think about. Does it suggest lenders are loosening guidelines and have more confidence in home values? Is this a reaction to try a increase borrowing demand?

Whatever the reasons behind the push for borrowers to consider interest only options, it is imperative that borrowers continue to have a wide variety of financing options, this being one of them.

There is no doubt the interest only option is an important feature to be available in the lending market. Although it was oversold in the last few years, in certain instances that an experienced loan consultant can help you identify an interest only option can be the right solution.

If you do consider a home loan with an interest only option, make sure you understand what will happen when that interest only period expires. Even if you are in a fixed rate program with the interest only option you will probably be subject to a monthly payment adjustment which you should be prepared for.