They were the villains of the housing crash. Federal regulators called them toxic. Now interest-only mortgages are making a comeback, but these are not the loans of yesteryear or yester-housing booms.
Return of the Interest Only Real Estate Mortgage
“I think it’s opening the door back to responsible lending, giving people choices,” said Mat Ishbia, president and CEO of Michigan-based United Wholesale Mortgage, the second-largest lender through brokers in the nation.
The company announced Monday it is now offering interest-only loans through brokers, with significant safeguards. Borrowers must put 20 percent down, ensuring that they have the “skin in the game” that so many did not during the heady days of the housing boom. They must have at least a 720 FICO credit score, which is well above average, and they must qualify on what the payments will be once they’re adjusted higher, not at the starter rate.
“These people can afford these mortgages. They’re savvy homeowners,” said Ishbia. “We’re giving them the choice. It is no more risk to us. We actually think it’s less risk.”
United Wholesale Mortgage does not hold the loans but sells them to investors. Fannie Mae and Freddie Mac, the government-backed mortgage giants, do not buy these types of loans.
The mortgage begins as a five-year adjustable-rate product. Without paying principal, a borrower using, for example, a $300,000 mortgage, would start at 4.125 percent today, the same as a 30-year fixed. Without paying principal, however, the borrower would save $420 per month.
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