This is yet another creative financing device from the days when buyers stretched to afford mortgages in very hot real estate markets. In the extreme, the payment schedule requires interest only with a balloon payment due on a specified date. The size of the balloon payment usually forces refinancing, and if equity has been created by rising home values, it might be possible to finance for a lower interest rate. But if the housing values have fallen creating an underwater loan, the result is often foreclosure.
This is another abusive mortgage scheme based on the idea that housing values will continue to increase. Many got in trouble with this kind of financing.
Related Fool Articles
Recent Mentions on Fool.com
- Apple Is Planning Something Huge
- The Pros and Cons of Adjustable-Rate Mortgages
- How Ford Motor Company Could Triple Value Returned to Shareholders
- Debt in America: Why We Should Aim to Be Debt-Free
- The Student Loan Crisis Isn't as Bad as President Obama Wants You to Think
- Is This the End of RadioShack as It Drowns in Debt?
- Why Two Harbors Investment Corp Isn't Scared of Higher Interest Rates
- Why Basic-Needs Stocks Are Vital to Your Portfolio
- Why the Resale Value of Your Rental Property Doesn't Matter
- The Mortgage Market's Next Opportunity
- Solving the Homebuyer's Condo-or-House Dilemma
- JPMorgan Chase Signals Strength in Credit Card Processing