Canada Gets I/O Loans, US Speculating With Debt
The web site Realtor.org reports that interest only loans are headed to Canada. "A unit of U.S.-based General Motors Acceptance Corp. is offering Canadian home buyers the nation's first fixed-rate, interest-only mortgage for up to 80 percent of a house's value."
"The product will get borrowers into bigger homes, as they can take on a mortgage that is 17 percent larger than one that also calls for the payment of principal."
And a story on home equity loans; "The amount of home equity extracted by U.S. property owners surged to $705 billion in 2004, with most of the money put toward buying new residences, repaying credit-card debt, and funding home-improvement projects. More homeowners are using the cash to purchase investment properties--2.2 million in 2004." That last number is more than all the new homes built in the US.
5 Comments:
Today's WSJ had a similar article on the front page. Pretty amazing stuff. Compare that $705 billion last year to $266 billion in 1999. The growth came from appreciation.
JLP
AllThingsFinancial
Now that Canada will be using IO loans their home prices will escalate. Sellers will extract every last dime out of a buyer. So they will raise the prices but the payments will be the same except now they are interest only loans.
... and the buyer is worse off but doesn't know it.
There will be a time again people will sell their house for a dollar! I did it in mid 80's when morgage rates hit over 20% a year.
This is a great speculative binge when the value they are sitting on drops 20~30 % people who own multiple dwellings with high leverages will feel really sorry.
Monkey see monkey do. That's the problem with USA predominance in the world. Why in the hell can people of others countries adopt what is good about USA and leave behind the mean stuff. Canadians are a bunch of goddamn morons. By the way I live in Canada.
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