Adjustable-rate mortgages with interest-only options have driven much of the buying activity over the last five years. With a slowing market, some owners may find that they owe more than their property is worth. In 2007, approximately 9 million adjustable-rate mortgages (ARMs) will readjust. Combined with a flattening or decrease in prices, many owners will be caught in the squeeze of having higher payments and no way to pay for them. In 2001, only 2 percent of the ARMs were interest-only, while today more than 35 percent are of this type of loan. San Diego has the most dangerous track record in this respect. In 2006, a whopping 47 percent of the purchasers used an interest-only product. This means that these properties have no equity. Assuming a 6 percent commission and 2 percent in additional closing costs, sellers typically pay 8 percent to sell. On a $300,000 sale, the seller would have to come up with an additional $24,000 to close. If property values have decreased, the seller ...
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