The New York Times reports As Household Debt Rises, New Risk in Higher Rates. The article reports on the increasing trend toward zero-interest loans and adjustable-rate mortages. Borrowers perceive these loans as having no risk because of their belief in the continued and guaranteed appreciation of their homes. They are also making a bet on the persistence of low interest rates for the duration of their mortgage.
- Responding to lower interest rates last year, homeowners refinanced $140 billion worth of mortgages in which they borrowed additional money. Mortgage lenders, in the meantime, rolled out scores of new kinds of loans, allowing people to borrow far more than they might have contemplated a decade ago.
The new loans go well beyond adjustable-rate mortgages. They include interest-only loans; “no document” loans, which allow people to borrow money at higher rates without proving their income or assets; and “no ratio” loans, which simply ignore a person’s monthly income.