What′s the Deal with Interest Only
Payments?
Interest Only Payments - Good in some limited cases, but beware!
Have you heard that commercial about interest only payments for mortgages...the one where you're told about what a wonderful benefit it is to have a low, low mortgage payment and all the wonderful tax write-offs you will receive?Before you decide to buy now and pay later, that is pay big time later, take a moment to enlighten yourself a bit more about these so-called interest only payments. Think about it for a moment. If you just pay the interest on your home, will you ever start paying on principal and will you ever earn any equity into 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. Simplified, that means you borrow money from a financial institution and they essentially buy your house and you pay it back. How can this happen if you're just paying interest? More accurately, interest only payments are a temporary reprieve for paying off a traditional mortgage. You may actually be prolonging the inevitable and eventually making it even more costly to pay off your mortgage.
Far too many people are in debt way over their heads because of interest only payments for their mortgages. They took advantage of attractive offers to buy now and pay later. With an interest only payment you're keeping the principal at minimum value while continuing to pay interest at 100%. With a more conventional mortgage you'd be slowly dwindling down the total interest amount.
Most interest only payments schedules are offered on Adjustable Rate Mortgages (ARMs), but they can also be found on a fixed rate mortgage. Interest only payments periods almost never run for the entire term of the loan which is typically 15 or 30 years. Depending on the terms of your contract, 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.
Conversely, interest only payments 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 payments method may be the way to go. However, keep in-mind that in a "down" real estate market you generally wont be building 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. Gone are the days when people stay in a home thirty years. Hence, if you anticipate moving before you'll have to start paying on the principal, then interest only payments may be ideal for you.
Theres a great deal of fine print to any mortgage. Evaluate your own goals; be vigilant when reviewing the terms on the loan you're considering before acting.
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Mortgages & Real Estate News
| Interest Only Mortgages - Google Blog Search |
| Some real estate investment basics by John T. Reed_房产小律师的 ... In fact, there is an extremely high likelihood of default when the borrower has put nothing down. And that risk rises if the mortgage is interest only because the buyer-borrowers can only build equity from increases in property value. ... |
| Dan Ariely: How to Save Ourselves From the Irrational Economy ... The second was the bankers' introduction of interest-only mortgages. While these mortgages allow for flexibility, from my perspective, these loans would be ideal only if people were purely rational, which we're not! ... |
| Market Pipeline: The Great Mortgage Modification Pump - GOD SAVE ... This style of modification does not sit well with owners of mortgage securities either, which make up the bulk of distressed mortgages. This is because deferred interest, 40-year terms and interest only teaser periods greatly reduces ... |
| Lloyds TSB Blocks Switch for Interest-Only Mortgages | Merchant ... Lloyds TSB has blocked borrowers' chance to switch to interest-only agreements despite their recent promise to the Government that they would support. |
| Modification Nightmare - Home Loan, Loan Modification ... I am not paying interest only. my first mortgage is with Chase bank and then i have a second with the seller for 131000.00. When I applied for my modification with chase I explained to them that we were struggling with the payments and ... |
| Winning Real Estate Property for Interest Only Mortgage 2006 ... In Interest Only Mortgage, you pay only the interest on each payment. You save money or cash on your mortgage payment, but your principal stays the same thru out the period. Depending on what you do with the savings, you can rake in ... |
| Homeowners with interest-only mortgages face financial ruin as ... Around 1.3million homeowners with an interest-only mortgage could be facing financial ruin, shocking research claims. |
| Interest-Only Mortgage Period is Over: Time to Refinance or Sell ... Those that take the interest-only mortgage route typically do so for a reason: they wish to keep monthly payments low for a few years. Let's take the example, therefore, of a couple that have been paying just interest on their home loan ... |
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| Working Paper - Christopher J. Mayer, Karen M. Pence, and Shane M ... Contrary to popular perception, the growth in unconventional mortgages products, such as those with prepayment penalties, interest-only periods, and teaser interest rates, does not appear to be a significant factor in defaults through ... |
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