Exploding growth in the mortgage loan segment has put the interest only loan in a huge category all it’s own. Up from the first part of the century, the interest only loan is now cornering a near one-fourth of the mortgage loan market. That kind of growth is almost frightening to even the most experienced lender. The benefit of the interest only loan is that the consumer is eligible to buy a much bigger house, than with a standard mortgage. Can you imagine the possibilities say four to five years from now, when many of these loans come due in paying the interest and the principal, if our economy isn’t still a thriving bustling place?
The interest only loan and the bigger house are great, if you’re certain in a given period of time that you’ll be able to afford a higher mortgage payment. But is anything guaranteed and given in this day and time?
The home owner that borrows with the interest only loan to be able to afford the bigger house has a bigger problem than just a mortgage note that may be beyond their means to pay, they generally live beyond their means elsewhere. Those bills will come due much faster than the interest only loan collector. The borrower that uses the interest only loan as a way to bridge the gap between my tomorrow salary, and the reality of today’s salary, will probably still have this same habit, when tomorrow’s salary becomes today’s.
This idea is great, if you happen to be a young professional with a great future, and you work for a company that’s willing to buy your home at the end of 5 years, when you’re ready to move up the corporate ladder, but these deals are few and far between. Most of the interest only loan borrowers don’t fall into this market segment. They’re in the one that will be trying to find a way to pay a huge mortgage payment in about 5 years.
The big house, the picket fence, and the great job are wonderful goals and dreams to have. You just need to make sure before you step onto the dream cloud, that you’ve got a net beneath you!
John Williams is the Arkansas land and property man.