With the blessing of at least one mortgager insurer, wholesale lenders are offering interest-only programs with terms beyond 30 years and loan-to-values up to 100% on fixed and adjustable rate mortgages.
Genworth Mortgage Insurance recently launched a 40-year loan program with interest-only payments for the first 10 years. The loan amortizes over the following 30 years, the company said, minimizing the payment increase by as much as 22 percent.
The popularity of short-term interest only loan programs has risen, the company said, over 61 percent of last year's mortgage loans in California were interest-only.
The appeal of the low payment on exotic mortgages wears off when the interest-only period ends as payment shock moves in, and it can "be magnified if interest rates rise," the company noted. The new loan program can absorb some of that shock by amortizing over 30 years as opposed to 20 years.
"The low initial monthly payment provided by IO 40 will assist homebuyers struggling to buy a home in today's high-priced housing markets," the announcement said. "And the 10-year IO term will provide payment stability as buyers build their financial foundations."
Available on loans with up to a 100 percent loan-to-value, a company spokesman told MortgageDaily.com the loan program is open to all channels and that "brokers and correspondents should check on product availability with their lenders."
Bank of America offers a similar program to both wholesale and retail channels. Spokesman Terry Francisco told MortgageDaily.com that the 40-year interest only loan products are available in fixed and variable rates.
Countrywide Home Loans' 40-year interest only is also available in both fixed and adjustable rates to brokers and correspondents, according to spokeswoman Cari Kerns.
"The mortgage is an interest only payment for specified fixed term of years, generally the first 10 or 15 years," Kerns said. "After the completion of the interest only period, the unpaid balance is fully amortized over the remaining term of the loan."