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A lot of those loans are IO only ARMs with a balloon. You pay IO and treat it as rent. Balloon in 5-10 years means you have 5-10 years in place where a landlord
by notyourday 8y ago
A lot of those loans are IO only ARMs with a balloon. You pay IO and treat it as rent. Balloon in 5-10 years means you have 5-10 years in place where a landlord cannot jack up rent on you. If everything goes well and your unit appreciates, then you now have more equity which means you refinance it again. If your mortgage requires you do pay off the balloon and you can't refinance, you sell. Even if you sell at a loss, the loss is likely to be less than the rent you would have paid for the same space. You take the money and do it again, in a new space.
This is one of the reason why you see all kinds of house trading among celebrities - they don't actually "buy" houses with conventional 30 year mortgages. When the balloons come due, they instead sell a house either for more money or for less money and make the balloon whole with the "saved rent"