With the estimated 2 trillion dollars of Adjustable Rate Mortgages coming due, a new mortgage is being slowly introduced to the market, the 50 year mortgage. By amortizing the loan out so far, they lower the rate and allow people to migrate from their ARMs that are having increased interest payments to the 50 year mortgage that provides lower payments than an equivalent 30 year mortgage.
Getting a 50-year loan is a perfectly rational way to avoid an interest-only or payment-option adjustable-rate mortgage, he said. With an interest-only mortgage, the minimum monthly payment doesn’t put any money toward principal. A payment-option ARM goes a step beyond that: In some circumstances, the minimum monthly payment doesn’t even cover the interest accrued that month. You make a minimum payment at the beginning of the month, and four weeks later, you owe more than you owed before the payment. This condition is called negative amortization, or “going negative.”
Forgive borrowers for thinking that it makes better sense to amortize a loan over 50 years than to get an option ARM or interest-only mortgage.
“Payment-option ARMs and interest-onlies have been so popular, we wanted to come out with a longer-term, fully amortizing loan for people who don’t want to go negative,” Diaz said.
Regulators and consumers worry that foreclosures will surge in coming years, especially among homeowners who got interest-only and payment-option ARMs. The 50-year loan is a lifeline for them, Diaz said. via the Seattle Post
