There is wide speculation that the housing market still has another “bubble” that has not yet burst. I can argue both sides of this as I do not think ANYONE really knows what will happen. But we can possibly predict when things will begin to happen to some degree.
What do I mean by that? Well…there is a school of thought that we are not on the road to recovery based on the fact that “option ARM” loans have yet to reset. An option ARM loan is an adjustable rate mortgage with the added flexibility of making one of several possible payment every month.
Typical option ARM loans have four major types of payment options:
- Minimum Payment~Monthly payment is set for 12 months at initial interest. After that, the payment changes annually, and a payment cap limits how much it can increase or decrease each year.
- Interest-Only Payment~With this option, you can avoid deferred interest, when the minimum payment is not enough to pay the monthly interest due. The interest-only payment option is not available if the interest-only payment would be less than the minimum payment.
- Fully Amortizing 30-Year Payment~ You pay both principal and interest and keep your loan on schedule. Your payment is calculated each month based on the prior month’s loan balance and remaining loan term.
- Fully Amortizing 15-Year Payment~You can put your loan on an accelerated schedule if you can afford higher monthly payments, the 15-year payment option allows you to repay your loan twice as faster and save more than half the total interest costs of a 30-year loan.
Here is a graph showing the Option ARM reset timeframe.
Many people think that since these have not yet reset (or recast….meaning when the loans go from negative amortization to fully amortizing) …we are in for another “dip” in the already struggling housing market. Homeowners are facing much higher mortgage payments at a time when the value of their house has plummeted. Another concern is that many homeowners are out of work. In some cases, homeowners who chose a very low starting interest rate have actually seen the overall amount of their mortgage increase—known as negative amortization—putting them even deeper in debt.
The other school of thought is that between the foreclosures, occasional sales, refis and modifications, no single wave will ever come in as big as expected.
I am hoping that the BIG wave is over and now we are just floating in the “ripples”!
Are you looking to buy or sell a home in the Phoenix Area? Please give me a call at 602-504-3898 or 888-897-7821 x114 and I will provide you excellent, friendly, knowledgeable service! Also, I have a GREAT search tool on my web site that gives you the ability to search the entire MLS…just like agents do. Very COOL! 😉 Go to Metro Phoenix Homes and check it out! If you save even one home as a favorite, you will be prompted to enter contact information. If you do this…YOU can create and save as many searches as you would like. It is THE BEST MOST ACCURATE SEARCH OF OUR LOCAL MLS!!