Mortgage rates can be a nightmare if buyers are uninformed
One reason cited for the recent shift in the real estate market
is mortgage rates.
Mortgage rates can be a nightmare if buyers are uninformed
One reason cited for the recent shift in the real estate market is mortgage rates.
In its quarterly report, La Jolla’s DataQuick found 33 notices of default during the last quarter in San Benito County, down from the 49 notices issued during the first three months of the year.
DataQuick analyst John Karevoll said that there are relatively few notices tracked in San Benito County, compared to larger surrounding counties like Santa Clara, Monterey, and Santa Cruz.
A few years ago people walked away from some of their homes in Southern California when a declining market left people holding mortgages more than their homes were worth.
The most important thing people need to understand, advises Karl Skow, president of the California Association of Mortgage Brokers Greater Monterey Bay Area Chapter, is what they’re getting into. Skow owns Pacific Finance in Hollister.
Interest-only loans get a bad rap, but Skow said that may be because people put a short-duration interest-only payment on the mortgage and then get into trouble when the payments jump, sometimes only months later.
Some interest-only mortgages, like a 30-year with a 10-year interest-only provision, are a more accessible payment plan, since at the end of the 10-year interest-only period the loan rate recasts with the current interest rate.
“Still, the interest-only loans get a bad reputation because a broker sells a borrower on a two-year or five-year interest-only period and then [the client] gets nailed at the end of the term. People need to be aware of how financing works,” said Skow.
“The house is the cheap part of the home purchase,” said Skow. Over the life of a typical loan, far more interest will be paid than principal.
People buy houses that they don’t qualify for all the time, Skow said. Sometimes it’s due to mortgage fraud, in which a buyer over-reports income. Other mortgages are offered with 100 percent financing, so the whole house is financed with money the person who purchased it does not yet have.
“A lot of kids don’t have any clue what to even look for,” Skow said. He stressed that people need to be absolutely clear what they’re getting into before they get there.
“It’s not the interest-only phase of these loans that hurts people, it’s not understanding the true workings of the loan,” said Skow.
