Why Mortgages Blew Up
Such loan offers historically have been "a flexible financial tool for sophisticated financial households," says Doug Duncan, chief economist at the Mortgage Bankers Association in Washington D.C. And in that sense, these loans fulfill a real need and are particularly useful for borrowers who are paid unevenly in lump sums and don't receive a steady paycheck.
Senior investment bankers and lawyers would be examples of those with such an income stream. They often work for nominal base salaries throughout the year, with the overwhelming bulk of their total pay delivered in a single annual bonus check. With such swings in the size of each paycheck, the ability to make mortgage payments at different levels throughout the year is a distinct advantage.
In addition, condo-flippers might also find such option ARM loans useful -- although they likely weren't the type of buyer that lenders had in mind when designing such products.
"If a developer was coming in and buying up a whole bunch of properties and planning on selling them very quickly for a profit, then it might make sense," says James Holtzman, a personal finance specialist at Legend Financial Advisors in Pittsburgh.These loans could also work for those starting out in a new job in a city with a high cost of living, such as San Francisco or New York, and where the borrowers would expect their income to quickly rise as they advance in their careers, Holtzman adds.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV