Courtesy Tony Guaraldi, VP of Mortgage Lending Guaranteed Rate Mortgage
Are Interest Only loans coming back??? Well technically they never fully left the industry even after the mortgage market meltdown in 2008, but most people are unaware these programs still exist today. However, there is only a small handful of lenders that offer the Interest Only programs today and they are nothing like “fog the mirror” test to qualify for them as it many people joked about prior to 2008. In fact the Interest Only programs offered today are even more strict in terms of income, down payment, and credit requirements then their principal in interest counter parts. Makes sense that underwriting would be more strict as the lender is taking more risk by not have principal reduced every month.
CLICK HERE for the current Friday Mortgage Rate Sheet effective June 13, 2014. After the meltdown in 2008 I had no requests for Interest Only programs due to the stigma associated with them at the time, but now with rising home prices and other rising expenses such paying for college education costs people are looking for ways to reduce their monthly housing payments. Again these programs will not allow a borrower increase what loan amount they qualify for as the underwriting is more strict, but they certainly can reduce the monthly mortgage payment! We have some lenders offering rates as low as 2.875% (3.031% APR) on 5/1 ARM with Interest Only payments! Another source offers 40 year terms with the first 10 years being interest only so when the recast happens the loan is then amortized over 30 years instead of the typical 20 years with most interest only loans. Thus there is not the larger payment shock of paying back the principal and interest amortized over 20 years after the recast. If you know anyone looking to purchase or refinance into something with lower payments we’ll be happy to answer all their questions about the programs!
MBS markets moved lower on Tuesday this week but have since found some support at the 50 day moving average (black line). Bond prices tested it four times this week it held each time including today we got a nice bounce. The technical signals look good for a reversal at his point and hopefully we’ll get some improvements next week. Helping pricing today was the Producer Price Index (PPI) which measures wholesale inflation came in surprisingly lower than expected at -0.2%. There has been some rising inflation concerns of late due to tensions in Iraq and threat of disruption in oil production. So this lower PPI number helps to curb some inflation fears and its helping bond prices today. Inflation is the arch enemy of fixed income investments such as Mortgage Bonds so any inflation indexes coming in lower than expectations is typically good news for mortgage bonds and mortgage rates.
Have a great Father’s Day weekend!
For more information contact: Tony Guaraldi, VP of Mortgage Lending Guaranteed Rate Mortgage; tony.guaraldi@guaranteedrate.com
o: 408.841.4953 – m: 408.504.3295
NMLS ID: 293894