Boom-Era Bill Comes Due

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Jumbo borrowers rushed into interest-only mortgages during the housing run-up; now many face loans entering their principal-repayment period

Jumbo-mortgage borrowers feasted on interest-only loans during the housing boom, enticed by low down payments and monthly outlays. But a monthly sticker shock could be ahead for these borrowers.

During the peak of the housing boom, from 2004-07, interest-only mortgages gave some buyers access to bigger or better homes than they likely could have afforded with a traditional principal-and-interest monthly payment.

The interest-only mortgage was meant for borrowers who had variable cash flow, such as independent contractors or salespeople who got large year-end bonuses. The loans attracted people who expected their income to rise over time, allowing them to handle principal payments later.

But a product meant for a select few was oversold, says Mark Livingstone, president of Cornerstone First Financial, a mortgage broker in Washington, D.C. Borrowers in high-price markets who had steady incomes and could afford a principal-and-interest payment instead opted for interest-only loans. Many borrowers who put down less than 20% with these loans were told that the rising real-estate prices would cover their lack of equity.

Read the full report here.

Cornerstone First Financial serves Washington DC, Maryland and Virginia. We specialize in home refinance loans, purchase loans and debt consolidation loans.

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