Housing Bubble - Not Yet

[Pretender]

Re: Housing Bubble - Not Yet

I've heard of people with even more "creative" loans for some of the overpriced houses in CA which are actually equity-negative (can't remember the exact term). Basically they pay only interest and their principal balance goes *up*

You may be thinking of the so called, "option ARM" mortgage. Each month you typically have four options to chose from on which to base your payment. These types of loans are often cited as being dangerous because the homeowner begins to adjust thier lifestyles around paying the "sub interest payment option" (ie. your ARM interest may be at 6% that month, but option 1 allows a payment based on a 1% interest rate, the so called negative amortization option). In a market with rising interest rates, if you do not have a exit strategy, these loans can eat you alive...