With the cost of homes increasing at a far greater rate than paychecks, the practice of interest-only home loans has grown regionally.
Using this type of loan, homeowners pay off the interest on their mortgage, but never pay down the principal. This lets them buy a more expensive home than they could afford if they had a more traditional loan.
However, “a disadvantage of this type of loan is that it shifts additional risk to the homebuyer, who is gambling on price inflation,” said Fairfax County Board of Supervisors Chairman Gerald Connolly.
According to a report issued by Fairfax County, it is estimated that more than one-third of new mortgages in 2004 were interest-only, compared with less than 2 percent of the loan market just five years earlier.
Fairfax Supervisor Dana Kauffman, D-Lee, said he’s concerned because many homebuyers in Fairfax and surrounding counties seem to think the housing market is on an unstoppable climb, contrary to both market indicators and history.
“The housing market isn’t dead, but it is slowing down, and we need to consider that,” Kauffman said. “We need to look ahead with clearvision.”
Local leaders are concerned that if the market slows down, the increasing number of interest-only mortgages would lead to a rise in foreclosures.
