In case you missed it, the stock market tanked today on concerns about subprime lending. Linked at the bottom of this post is a PDF report that I helped compile last spring as a Graduate Student that goes into the horrors of subprime lending. Folks, these mortgages are bad for the common consumer and you all need to stop getting them!
In short, a subprime or “non-traditional mortgage” (NTM) is any mortgage product that is a departures from the longtime gold standard of lending, the 30-year fixed-rate mortgage. So when you see these commercials for low-interest loans to help you afford a bigger house – stay away!
These interest rates are only available for a short-period of time (usually a 1 – 7 years) and then an automatic “rate reset” sets in and completely jacks up your interest rate! There is nothing you can do about this rate reset because it’s locked into the terms of the loan. STAY AWAY!
The truth is that if you can’t afford to buy a house in the market today or if you plan on buying a house that you actually want to live in and not flip, then you need to be able to afford that house with a traditional 30-year mortgage rate (by the way, flipping has helped ruin many fixed-income communities – e-mail me if you want more information about that).
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