The Luxury Home Time-Bomb… Still Ticking For Sacramento and Nation
June 8th, 2009 Categories: Mortgage and Loans, Real Estate News, Real Estate Trends, Sacramento Real Estate, Sacramento Sellers, Shortsales
Luxury home data suggests a big problem in the luxury market…
The Trophy-Home “Pay Option” time bomb
In the luxury home market, reset dates indicate as much as 70% of ARM loans– Adjustable rate mortgages (Pay Option ARM’s) may default over the next three years.
‘Teaser rate’ loans, were used by many high-end buyers in the hey-day of Sacramento’s real estate run-up; where buyers would enjoy a much lower monthly payment by deferring interest and principle. Thousands of homeowners are facing resets of their interest rates that can cause monthly payments to balloon upward of 65% as reported by Credit Suisse (CS). “Home owners list major payment adjustments”. For example, a 1 million dollar mortgage taken out 36 months ago with an initial payment of $2,528 per month could jump to just under $7,000 per month.
These Pay Options were typically given to higher qualifying buyers, those with high credit scores, good work history and great income, but they were attached to a time-bomb. If the prices had kept rising, everything would have been fine, …but…
So even those who had equity, a great income, good credit score and were just trying to keep their payment low, might be in trouble- there are so many types of adjustable rate mortgages (ARMs) or Pay Option (ARM’s); and some carry heavy prepayment penalties that were going to be paid by equity, that now will not be able to be re-financed once the loan adjusts.
Katy bar the door– big houses are going to get cheap!
