Way too much is being written about “The Plan“. I’ve been reading as much as I can. You should be too.
I ran across an interesting thought while reading Tanta at Calculated Risk.
Let’s say you are lucky enough to be one of the few that the plan has singled out. Let’s say you have a 2/28 Interest Only loan.
When you are rescued we know your rate will be frozen. We know that. What about the amortization period? Will your I/O period be extended 5 years as well? It better be. That would allow you to remain afloat. Remember, one of the key qualifying factors for membership is that you CAN afford the payment now but you CANNOT afford the payment when your rate adjusts.
If your rate is frozen but the I/O period is not extended, the most important part of the equation (the payment) will rise. Will this rise cause the borrower to fall behind even though they were frozen?
On a typical $400,000 loan amount at 7% rate the I/O payment would be $2,333, the amortized P & I would bump to $2,661. Yes that’s only $328 a month but it could mean the difference between success and failure.
- So will the I/O periods be extended?
- Or will they not be and we’ll just “Hope Now” for the best?
- Or will they be adding Rule 4b. You cannot have an Interest Only Loan.
