In a recent article published in the National Realty News, they discuss the notion of payment shock and what it will do to the economy. In the mortgage industry, payment shock is referencing what a borrower will feel once their adjustable rate mortgage actually adjusts.
In the article, bankrate.com reports that over the next 18 months, more than $1 trillion of adjustable-rate mortgages will be hitting their first reset date. So, assuming a $200,000 mortgage, that amounts to 500,000 mortgages being affected. The article goes on to say that, an interest only loan will now force a borrower to start “playing catch up” on the principal.
Okay, I understand the concept and point that this is trying to make but in reality most owners would get out of their adjustable rate mortgage before the adjustment period comes into play. There is a reason that they are called short term fixed loans…they are not meant for borrowers to keep past the fixed period. I don’t know if the research done by Bankrate.com can even determine if loans that were up for an adjustment have been refinanced. So, much like all statistics, these numbers have some grey area and there is no way to tell what is really going to happen.
Bottom line…loans have always adapted to the market. When they needed to find ways to make home ownership more attainable, they came out with the interest only loans. Interest only too much…here comes a 1.0% option arm. Believe me, I understand that each time the mortgage industry comes out with a product to make home ownership easier that the risk of that product becomes greater and that is why buyers should get out there and find a home while there is some balance between prices and the mortgage product assumed with the purchase.