Anyone over the age of 10 who works in real estate remembers the 2008 housing market crash, and anyone younger remembers the film version, The Big Short. Both events were traumatizing.
That lingering trauma is currently manifesting itself in a jittery populace with a heightened sensitivity to anything even remotely reminiscent of events leading to the crash.
We know this because any time MBANC mentions that we offer interest-only loans, we get a dose of social media pushback from people who are understandably concerned, but actually misinformed. Wary comments like “Is this 2008 all over again?” are common.
The good news is, it’s not 2008, and the country has learned hard, useful lessons since the Wild West days of anyone-with-a-pulse lending. We’ve also put strong safeguards in place to prevent a rerun of the foreclosure crisis.
The many significant differences between 2008 and today have led a majority of analysts to conclude that we are, in fact, not headed for a second great recession:
|Home prices up due to low inventory||Home prices up due to permissive lending|
|Fixed rate loans predominant||Balloon payments common|
|Rigorous qualification process includes income, credit, and DTI checks||Are you breathing? Here’s a mortgage!|
|Average borrower has $185,000 equity||Many borrowers upside-down|
|Dodd-Frank consumer protections||Rampant predatory lending|
|Interest-only loan converts to fixed rate after 10 years||Interest only loans convert to adjustable rate after 2 or 3 years|
Although interest-only loans got a bad reputation in 2008, today’s interest-only loans, which convert to a fixed rate after a decade, are markedly different from pre-crash loans that converted to balloon payments after a couple of years.
More interest-only loan advantages:
- Ten years of low interest-only payments
- During the interest-only period, 100% of payment qualifies for mortgage interest tax deduction.
- Choose to pay additional principal if you wish
- Amortizes into a 30-year fixed-rate mortgage after initial term, no balloon payments
- Can be refinanced in the future
- The low payment helps housing affordability and frees up cash for high-yield investments.
The country was battered in the 2008 recession, but fortunately, there are times when history does not repeat itself , and this is one of them.