Interest Only Loans Claw Back

[Andrew Hoek]

Ten years ago, the real estate market was on its way to all time highs. Anyone who was not investing in real estate was a fool. Along with all of the excitement came the infamous 10 year, interest only loan. Fast forward 10 years and the real estate market is slowly recovering from one of the largest crashes of all time.

While the market has somewhat recovered, millions of property owners remain underwater on their real estate investments. Moreover, the term of their interest only loan is suddenly coming to an end. In the blink of an eye, mortgage payments can increase 30, 40, even 50 percent. In the wake of increased payments, many rental properties will become sinking ships for landlords, and many homeowners who are barely keeping up with payments will be forced to either re-finance, modify, or walk away from their homes.

There are options available to those who are now forced to pay principal in addition to the interest on their loans. The first option is to re-finance. For those lucky enough to be able to re-finance, this will be the best case scenario. Please note, however, that a re-finance does include closing costs and obtaining new title insurance for your lender. For others, if the property is underwater, refinancing may not be an option and they will need to look to a mortgage modification. A mortgage modification can be in the form or a principal reduction, or adjustment to the monthly payment. Modifications require a balancing act where the borrower makes enough money to afford the loan, but also suffer a hardship that prevents them from making the original monthly payment. A final option for those who simply cannot keep up with their payment, is a short sale. A short sale is the sale of property for an amount that is less than what is owed to the bank. The sale requires bank approval and can be several month process.