Thursday, March 15, 2007

Substaintial Risk with Subprime Mortgages

Subprime Mortgages, mortgages given to home buyers with risky credit histories, allowed buyers to purchase homes in the craze of the market boom of the last few years. The effect? Foreclosure rates are increasing, more than two dozen subprime mortgage companies are closing their doors for good, and home buyers with subprime mortgages are facing significant risk. According to an article by the Washington Post:
“4.95 percent of all home mortgages were delinquent, meaning they were at least 30 days late. The most dramatic rise among subprime borrowers. The survey also showed that lenders initiated foreclosures against 0.54 percent of borrowers – or about one in every 200.” read the complete article here
In my opinion, subprime mortgages are significantly risky for buyers who stretch themselves to the max to do a 3-year interest only ARM. While short term interest only ARMs are wonderful short term deals, buyers face serious danger if they do not refinance before the interest rate jumps. If you are in this situation, I strongly urge you to try refinancing to a 30-year fixed mortgage while rates are still low (around 6.25% today).

Also keep in mind that foreclosure rates are increasing, meaning that there is a higher supply of “bank owned” properties. Bank owned properties compete with sellers when they are selling their home, making it a much more difficult market for sellers.

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