Bad Credit Online Magazine - Daily News and Advice on Credit, Debt and Mortgage : Bad credit interest only mortgages and option ARMs will be harder to get

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December 15, 2005

Bad credit interest only mortgages and option ARMs will be harder to get

Interest only mortgages and option adjustable rate mortgages have been keeping home sales and refinancing up. By providing low initial payments from 1 month to up to 10 years, these mortgage programs allowed virtually anyone to buy much more of a house than traditional home loans. After the initial low payment period expires, payments can go drastically up, reflecting much higher interest rate and the principal still owed. This creates a huge payment shock for a homeowner. Interest only and option ARMs are easy to qualify, and lenders have given these mortgages to many borrowers with bad credit and poor finances.

Now federal regulators are about to issue a warning which will make lenders think twice before giving either of these mortgage programs to a borrower in a bad financial or credit shape. Basically, the feds want to remind the banking and mortgage industry, that certain qualifications must be met by the borrower to obtain a high risk mortgage program.

What it means is fewer home buyers and fewer cash out refinances with bad credit.

Posted in Mortgages at December 15, 2005 12:14 AM

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