Orlando Mortgage Blog

Interest Only Mortgages Facing Changes

May 3rd, 2010 1:09 PM by BILL WILBANKS

 

LOW I/O PAYMENTS and EASIER QUALIFYING are due to change folks!  This is worth saying again.

Freddie Mac announced earlier this year that on or about September 1, 2010, the company will cease purchasing and securitizing interest-only mortgages. Lenders will usually stop taking these 2 months or more before the cutoff to meet delivery dates.
 
Fannie Mae announced it will tighten lending requirements for interest-only loans and adjustable rate mortgages delivery dates on or before August 1, 2010. Key points are a minimum of 30% down payment (70% max LTV). Lender must insure borrower could still afford payments even if their interest rates on loans with a fixed term greater than 5 years reset to the higher of either 1) the loan's initial interest rate plus 2 percentage points or 2) the maximum the ineterst rate the loan can rise to (lifetime cap rate). So if the loan has a start rate of 3.5% and a lifetime cap rate of 5%, borrowers would have to qualify at 8.5% (start rate of 3.5% + 5% worst case). ARM loans with fixed terms of 5 years or less will qualify at the greater of note rate + 2% or the fully indexed rate, and I/O loans will have the same 70% max LTV and minimum FICO of 720 with 24 months minimum cash reserves. Lenders will usually stop taking these 2 months or more before the cutoff to meet delivery dates.
 
So, word to the wise, if you are thinking of taking advantage of the current I/O terms and advantages do so "as soon as possible".
 
 
Posted in:General
Posted by BILL WILBANKS on May 3rd, 2010 1:09 PM

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