Securities firm UBS reports that nearly one half of all loans which are past due more than 90 days are paired with a second mortgage. Only 30% of loans that are paid current have a second paired with them.
A financial analyst with the Center for Financial Research and Analysis, Zach Gast states that loans that are coupled with a second mortgage are at a far greater risk for default. Mr. Gast reports further that borrower's levels of debt-to-income are very similar for every type of mortgage. This is regardless of whether payments are current or late. This could be pushing the borrowers into default or delinquency situations with their mortgages.
Four Unique Mortgages Gain Popularity with Borrowers
The most popular loan for prime borrowers continues to be the thirty year-fixed rate mortgage. Many borrowers are looking into a variety of other loan options. Here are a few of the more unique types of loans offered:
Adjustable Rate Mortgages (ARM)
2/28 & 3/27 ARMS: The rate on this loan id fixed for a two year period, then adjusts higher for each year that remains on an underlying interest rate index. The rates on subprime loans tend to vary more than prime rate loans. Most are currently near 8%.
Interest-Only Loans: These are mortgages in which the buyer only pays the interest on a loan amount. This arrangement is usually lasts a period of 3-10 years prior to the principal of the loan amount is amortized. This type of loan could drop monthly payments on a loan amount of $200,000 by nearly $200 per month using current rates.
80/20 Loans: 2 mortgages together in one loan that finances 80% of the house along with an additional "piggy-back" loan that covers the additional 20%- depending on the amount of the down payment. A downside to selecting this type of loan is that a new tax law was recently passed that gives a deduction for mortgage insurance.
Payment Option Adjustable Rate Mortgage: These mortgages offer the buyer a variety of monthly payment options. These loans have received a fair amount of criticism because they enable the buyer to increase the balance of their loan. This is referred to as negative amortization. The buyer is able to payments of the principal as well as part of the interest for a limited period of time.
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