I received some junk mail this weekend - big deal right? Well, one piece stood out as a potential sign of where the real estate market is headed - a mortgage refinance offer from Bank of America that included among it's options a mortgage with interest-only payments for the first ten years! I have noticed lenders coming back to the table with more and more aggressive loans over the past few months, but this is the first time I've seen a major national lender actively pushing interest-only residential loans in a while.

Interest-only (aka IO, zero-amortization, or non-amortizing loans) were one of the many 'exotic' loan options that allowed so many people to over-leverage their properties during the bubble. In my opinion offering buyers an interest-only option encourages a lot of risk taking and reinforces the idea that housing values can only go up - this idea has been proved wrong and very dangerous. It seems like the banks have enough problems with underwater legacy loans, weak balance sheets, and tattered public images without getting started on the next cycle of dumb mortgages.

I guess the only silver lining is that if you're a buyer who really wants to keep your monthly mortgage payment as low as possible and you don't mind the risks associated with interest-only loans you can now get them from BofA - but now more than ever buyer beware!