Edward and Maria Moller are worried about losing their house — not now, but in 2013. That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years.It was a “buy now, pay later” strategy on a grand scale, meant for a market where home prices went only up, and now the bill is starting to come due.With many of these homes under water — worth less than the loans against them — many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal. Monthly payments can jump by as much as 75 percent.The Mollers owe so much more than their house is worth, and have so few options, that they are already anticipating doom.“I’m praying for another boom,” said Mr. Moller, 34. “Otherwise, we’ll have to walk.”Keith Gumbinger, an analyst with HSH Associates, said: “This is going to be the source of tomorrow’s troubles. The borrowers might have thought these were safe loans, but it turns out they bet the house.”After three brutal years, evidence is growing that the housing market has turned a corner. Sales in July were the highest in a year, and August gives signs of having been even better. In nearly all major cities, home prices are now rising.Celebration, however, might be premature. The plight of the Mollers and many others in a similar position is likely to weigh on any possible recovery for years to come.
via Interest-Only Home Loans Start to Backfire – NYTimes.com.
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