(January 6, 2005) -- Quicken Loans Inc. has taken the concept of zero-percent financing, a popular promotion among car dealers and credit card companies, and applied it to the mortgage industry.
Its "Take 6" loan actually is described as "nearly zero-percent" financing since the lender had to tweak the product so that mortgage-finance computer systems still would accept the unusual terms and calculations.
In exchange for a six-month deferment on monthly interest payments, borrowers agree to pay 2.25 points upfront plus traditional closing costs. They then begin making monthly interest payments, with rate fluctuations possible, and after 10 years principal is added for the remainder of the loan period.
Mortgage analyst Keith Gumbinger of HSH Associates says the emergence of zero-interest residential financing is not surprising "as we near the end of a mature mortgage lending market, when most people have done their refinancing, interest rates have begun to creep higher and lenders are finding it harder to write adjustable-rate loans."
While zero-percent financing and interest-only loans can be a useful debt-management tool for financially savvy consumers, they are likely to have more drawbacks than benefits for borrowers who will not be able to handle sharp increases in their mortgage payments or who want to pay down their mortgage debt.
However, they could prove beneficial to borrowers who can afford higher payments when rates rise and who live in areas where property prices are expected to grow substantially over the next several years.
Source: Wall Street Journal (01/06/05); Cullen, Terri
past
bulletins:
Are interest-only mortgages a good deal?
Homebuyers Favor Shorter Commutes, Walkable Neighborhoods
Use Caution With 0% Financing Loans
Fed Chief Warns of Housing Market Risks
Financing to build condos withers