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Good news for subprime borrowers

by sfishome on December 5, 2007

More and more news is popping up about progress towards a “freeze” on ARM’s (adjustable rate mortgages) for subprime borrowers. Until the official announcement comes out it’s hard to say if this will effect you. After all, interest-only 5/1 ARMs were the most popular loan for nearly every class of borrower in 2004 and 2005 when they represented a significant savings over fixed rate loans. Today the rates are virtually the same on interest-only vs. fixed-rate, so you only choose interest-only to avoid paying down principal. In ’04 and ’05 you chose interest-only because your interest rate was as much as a full point cheaper too.

But in all the articles, like this one, they say the “relief” is for sub-prime borrowers. I don’t know if that means only those who were originally sub-prime, or if it includes people who would now be sub prime due to a drop in their credit score, or a loss of a job or decrease in annual income? Since most ’04 and ’05 borrowers took on loans that are due to re-set in the next 1 to 3 years… there are going to be a lot of people wondering if they can keep their same low interest rate. Or, will the most well to do be forced to pay more, so that those with poor credit can pay less?

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