Announced in April 2017, the review was a targeted industry surveillance examining whether lenders and mortgage brokers are inappropriately recommending more expensive
interest-only loans.
Global Banking News-May 31, 2017--Teachers Mutual Bank makes changes to
interest-only loansBut DeAnne Julius - a founder member of the Bank of England's Monetary Policy Committee - doesn't agree and argues that
interest-only loans can "make sense for certain people at certain times in their lives".
It also states that first-time buyers, who face some of the most acute affordability problems, are less likely than other borrowers to take out
interest-only loans (17% of first-time buyers choose an interest-only mortgage, compared with 25% of home movers).
Interest-only loans allow buyers to lower their mortgage payments by paying the interest on the loan for a period of three, five, seven, or 10 years.
Since
interest-only loans have a few years at the beginning when the borrower pays only interest and then begins paying on the principal, the monthly payment becomes much larger after a few years.
MyMortgageDirect said increasing numbers of borrowers had started taking out
interest-only loans following recent rises in the Bank of England base rate, but the majority did not have an investment policy to pay off the loan.
Only six out of the top 20 lenders could tell how their borrowers are planning to repay
interest-only loans.
The underlying cooperative market is more competitive with additional sources offering 10-year
interest-only loans for well sold out buildings in the 9 percent range.
Two additional factors that seem to have contributed to the growth in real estate exposure are the rise in outstanding balances under home equity lines of credit (HELOCs) and the increased popularity of so-called "nontraditional" or "affordability" mortgage products, such as
interest-only loans and payment option adjustable rate mortgages (ARMs).
6%; and the percentage of
interest-only loans with a term greater than five years reduced by more than half, from 11.
1% of new loans in 2005 were
interest-only loans and that option ARMS with initial rates as low as 1% and very low minimum payments were growing in popularity.
