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In researching a story about interest-only mortgages recently, I came across this guide put out by Bankrate.com, a Web site that provides advice about borrowing money.
It’s a fascinating read, especially when you take into account the sheer number of interest-only loans taken out in San Diego over the last couple of years. We reported recently that more than 70 percent of loans taken out last year in the county were either interest-only or negative-amortization loans.
That’s a lot. It’s a particularly high proportion when juxtaposed it with the advice Bankrate.com’s giving out.
“I can’t see the average guy doing an interest-only mortgage because I can see him digging himself into a big trap,” the Web site quotes J. David Lewis, a certified financial planner with Resource Advisory Services in Knoxville, Tenn., as saying.
“Lots of people tell themselves that they’ll invest the difference between interest-only and amortizing mortgages, but not all of them follow through. The money is there, tempting them to spend it on boats, vacations, pampered lifestyles.”
That’s exactly what worries analysts in San Diego.
Local economists are concerned that many borrowers in San Diego have extended themselves too far with so-called “creative financing.” They are worried that if the housing market remains flat and home prices do not increase, those borrowers will be unable to refinance their loans and will end up upside-down in their mortgages.
That could lead to increased foreclosure rates, which could, in turn, lead to price reductions and so on.
Experts say the next few months should tell.