Dangerous Phoenix Mortgages

ForeclosureS.com, an advisory firm and publisher of foreclosure lists, has reported "that filings of new notices of trustee sales in the Phoenix metro area totaled 2,243 in the second quarter of 2005, down from 3,220 in the first quarter."

These numbers suggest that the Phoenix economy is healthy, but defaults are expected to rise as interest rates increase. ForclosureS.com has "always seen a correlation between rising interest rates and an increase in foreclosure activity."

In order for buyers to avoid losing their homes to foreclosure, it is probably wise to steer clear of two kinds of Phoenix mortgage.

The first is the interest only loan. According to an article in the Arizona Republic, an average homebuyer "could qualify for a 4 percent fully amortized adjustable loan of $250,000," but if that same buyer were to choose an interest only Phoenix mortgage, he or she could receive a loan for up to $350,000. The trouble with this kind of Phoenix mortgage is that people are buying homes that they can´t really afford.

The second yet equally dangerous option is the ARMS loan, which offers "a start rate of as little as 1%." The hitch is that the start rate is usually only good for one month. Then it changes to the fully indexed rate, "causing negative amortization because the unpaid interest is added to the loan balance."