Anticipating double-digit interest rates in 1995, Countrywide Credit Industries is offering a new product it hopes will be a big seller in a high-rate environment.
Last week the Pasadena, Calif.based mortgage banking giant rolled out a new adjustable-rate hybrid called a "10-Year Interest-Only ARM." As the name suggests, the loan features interest payments alone for the first 10 years, with full amortization in the remaining 20 years of its term.
The interest-only feature, which keeps monthly out-ofpocket costs to a minimum, is an attempt by Countrywide to counter the pricing advantage of portfolio lenders.
As interest rates have risen, mortgage bankers, who must sell most loans to the secondary market, have found themselves unable to match the rates of banks and thrifts, particularly those linked to the 11th District Cost of Funds index.
Here's how the new loan works:
* Borrowers receive a lower interest than a 30-year fixed rate loan, allowing them to qualify for a larger loan.
* Borrowers may repay interest alone for the first 10 years, but retain the option to repay principal every month.
* The loan has annual and semiannual adjustments and interest rate caps, guarding against payment shock and negative amortization.
The interest-only option is available in products tied to Treasury bill rates, certificate of deposit rates, and the London interbank offered rate.
Countrywide will sell the mortgages as whole loans to Wall Street firms.
