Holden Lewis of BankRate.com
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“In the next couple of years, a combination of rising mortgage interest rates and falling home values could plunge thousands of homeowners underwater.”
“Being underwater means owing more than the house is worth. It’s an especially risky situation for people with interest-only mortgages and pay-option adjustable-rate mortgages. Some might be able to refinance or get through hard times by living frugally. Others will have to sell their houses, possibly at a loss. Still others will lose their houses to foreclosure.”
“If you have an interest-only or pay-option ARM, assess your situation and, if you conclude that you are in jeopardy, act quickly. “I don’t think burying your head in the sand is a viable option,” says Neil Garfinkel, an attorney with Abrams Garfinkel Margolis Bergson in New York City. Most homeowners will sail through just fine. Two groups of borrowers should look ahead to see if they’re heading toward a reef that could sink them.”
“Homeowners most at risk of being underwater:
—¢ The first group consists of homeowners who are making the minimum payments on interest-only mortgages. Not all of these folks are at risk. The ones who should especially watch out are those who bought homes in the last year or two in markets where house values are falling, and who made no down payment or a minuscule one.
—¢ The other group consists of people who are making minimum payments on pay-option ARMs on homes that they bought within the last two years after making a down payment of 10 percent or less.”
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