You've probably not heard the term upside-down home loan yet, but I predict that you will be hearing about it soon.  The growth of nontraditional interest-only mortgages and payment-option ARMs will ultimately drive consumers down the road to the upside-down home loan.

Nontraditional interest-only mortgages more than doubled in popularity in just two years. San Francisco data firm Loan Performance says interest-only loans accounted for 26.4% of U.S. mortgages last year, up from 10.3% in 2003.

Another very risky mortgage type - the payment-option adjustable rate mortgage (ARM) - allows borrowers to pay less than the accrued interest with the unpaid interest added to the loan principal.  With these mortgages a homeowner could end up owing more than the house is worth very quickly.  Loan Performance reports the popularity of these types of loans jumped from 0.4% in 2003 to 10.4% last year.

Based on Loan Performance statistics, these exotic loans were used by 36.8% of the consumers who either bought a home or refinanced one last year.  Yikes!  I didn't realize the numbers had jumped that much in just two years.

Since these loans are relatively new to the market and consumers have at least five years before being socked with huge payment hikes, the real danger won't be seen by consumers for a few years.  I predict that by 2010 many of the consumers who used these nontraditional mortgages will be facing foreclosure with the amount due on the mortgage higher than their homes are worth.  You've heard of the upside-down car loan.  We'll soon be hearing about the upside-down home loan.