Have you seen commercials about interest-only mortgages... the ones where you're told about what a wonderful benefit it is to have a super low mortgage payment and all the wonderful tax write-offs you'll receive?
Before you decide to jump into an interest-only mortgage, take a few minutes to enlighten yourself a bit about them.
Think about this... if you just pay the interest on your home, will you ever start paying on the principal and will you ever have any equity in your property?
By definition, a mortgage is a "temporary conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt."
Or, putting it simply, that means you borrow money from a financial institution and they essentially buy your house and you pay it back. But how can you pay it back if you're just paying interest?
More accurately, interest-only mortgages are a temporary reprieve for paying off a traditional mortgage. You may actually be prolonging the inevitable and eventually making it even more expensive to pay off your mortgage.
Far too many people are in debt way over their heads because of interest-only mortgages. They took advantage of what appeared to be attractive offers to 'buy now and pay later.'
With an interest-only payment you're keeping the principal at the full loan value and every penny you pay is interest. With a more conventional mortgage you'd be slowly paying down the total mortgage amount.
Most interest-only payment schedules are offered on Adjustable Rate Mortgages (ARMs), but they can also be found on fixed rate mortgages. Interest-only payment periods almost never run for the entire term of the loan which is normally 15 or 30 years.
Depending on the terms of your mortgage, you could be expected to start paying on the principal in five, seven or ten years. Once the interest-only period ends, your monthly payment will go up because then you'll be paying on both principal and interest.
On the other hand, interest-only mortgages can be a good thing for some people. For those people wanting to purchase a bigger/better home for a lower down payment AND who anticipate moving within seven years, the interest-only mortgage method may be the way to go.
However, keep in mind that in a "down" real estate market you generally won't be building any equity and making money by doing it this way. The majority of the money made from investing in real estate comes from an increase in value to the home.
The average person moves every seven years anyway. The days when people stay in a home thirty years or more are gone. So if you anticipate moving before you'll have to start paying on the principal, then an interest-only mortgage loan may be ideal for you.
There's a lot of fine print to any mortgage. Evaluate your own goals and be vigilant when reviewing the terms on the loan you're considering before acting.
By : Jim Power
Jim Power is writer for the student loan information site http://mortagesave.com/ where there is more information to be found interest only mortgage can be found.
No comments:
Post a Comment