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Montauk Real Estate Advice
How the Crisis in
Non-traditional Loans Affects YOU
by Nick Deane
It shouldn’t. You can’t pick up a newspaper any more without reading something about the problems caused by nontraditional loans. They have started to cause real problems—some lenders are going under and foreclosures are going up--but they need not be a problem for you. In the last few years, lenders competed for mortgages by offering more newer, nontraditional mortgages. Adjustable mortgages became a rage, interest-only took off big time, and no-document loans became common. This trend was both good and bad.
It was bad because banks lowered the bar on their scrutiny, so a lot of people got mortgage loans that their incomes couldn’t sustain in the future, and a lot of these borrowers are now losing their homes. But it was also good, because it enabled a lot of people to buy a home they could not otherwise afford. For instance, with an interest-only loan, your monthly payment is lower than if you were paying off principal at the same time. You don’t reduce your debt, but you save a lot of money every month. Sometimes, though, you can reduce your debt without a penalty. If you get a loan without a prepayment penalty, you can pay off as much principal whenever you want without having to pay a penalty. These loans enable a lot of people to buy a home that they otherwise couldn’t afford.
What should you do? If you have a nonconventional loan, just keep paying it off. And don’t worry about it. The only borrowers who are losing their homes are those that couldn’t afford the house to begin with. If you are taking out a loan, do whatever seems to make the most sense. Just make sure you don’t take out a loan that will become too expensive a few years down the line. But if that is the case, think about refinancing it now, before rates go up again.
Nick Deane is a Senior Loan Officer with Buyer’s Choice Mortgage. He can be reached with your mortgage questions at 917 576 6408. He also owns Nick’s on the Beach in Montauk, with his wife Claire Dowling, who is an Associate Broker with Pospisil Real Estate in the circle in Montauk. She can be reached with your real estate questions at 668 5200.
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