RealEstateJournal | Mortgages and More:
Interest-only mortgages were a hot topic on Thursday. Fed Chairman Alan Greenspan, in testimony before Congress, expressed worry over interest-only loans, saying that their prevalence is of “particular concern.” Interest-only loans are 30-year fixed-rate loans that artificially lower monthly mortgage payments upfront by deferring principal payments over a period of time, typically seven to 10 years. Indeed, adjustable-rate mortgages and interest-only loans accounted for nearly two-thirds of mortgages in the second half of 2004, said the Mortgage Bankers Association.

Many of my clients in the Charlottesville/Central Virginia area are opting for interest-only mortgages, for one of two, and sometimes both, reasons. The first is that many are not going to live in their house for more than three to five years. The second reason is that the first 48-96 payments are usually mostly interest anyway; why not take advantage of the lower rates, if they are short-timers from the time they close?

This assumes that the housing and mortgage markets will remain healthy … many problems could arise if rates go into the double digits and prices plummet.