i know they have stripped mortgages that are interest only. so in this case, do they just keep paying interest and never have to pay any princdipal. or is it that they just pay all the principal at maturity, and otherwise just keep paying monthly interest payments until maturity. thx.
Usually for interest only mortgage is interest only for the first 1yr, 3 yr, 5 yr or 7yr. That means you pay only interest payment (no principle) for those first period. After that, you have to begin to pay interest and principle. This type of mortgage is suitable for people who knows for sure that they are moving out of that house within those time frame and wanted to pay the lowest possible monthly payment (no caring about building any euqity). With the way market is, I am sorry that I used the word “equity”
These are the hybrid 2/28, 3/27, and 5/25 mortgages that have been the bane of my existence. The gist is that someone with no money to put down wanted to buy a home, and assumed that it would appreciate at about 50% per year (exaggerated for emphasis). So, because they couldn’t afford to pay the traditional, 30 year fixed (principal + interest) monthly payment, they basically defer principal for the first two years for a 2/28, three years for a 3/27, et cetera, and pay only the interest. Then the rate resets at the end of two years, and since their home has not appreciated dramatically (and in many cases depreciated), they get foreclosed, my bonds go to shit because they’re not making paymwnts, and they’re out sucking dick for food within a couple of months.
skillionaire, did your firm got caught in this Sh*t storm?