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Balloon Or Reset Mortgage Loans - Understanding The Basics
A balloon mortgage, also called a reset mortgage, offers lower
interest rates with the option in 5 or 7 years to pay off the
balance or resent the loan. Considered more risky than an ARM
since interest rates can jump significantly, it is a...
Computer Loans -An opportunity to have a computer of your own
Computers nowadays have become a part and parcel of everyone's
life. To keep oneself updated, one needs to match pace with the
changing technology. You too must be using a computer for
various personal and professional purposes. The real...
Home Loans -- Federal Regulators Warn Lenders to Be More Careful
Federal banking regulators have recently expressed some concern over the housing market as home prices in the United States have risen to record levels. While homes are more unaffordable than ever for many people, the lending market remains strong,...
The other side of Debt Consolidation Loans
"Consolidate all your debts with a low-cost Debt Consolidation
Loan". Recently, you will see this type of advertisement in all
forms of media. It sounds alluring to consumers who are in debt.
Most of the borrowers keep on pondering about the...
Use Real Estate Loans To Finance A Commercial or Residential Property
Real estate is one of the most lucrative investment options.
Besides using it for investing, people acquire real estate to
have a comfortable and sprawling residence. Real estate is also
used to further a person's business and commercial...
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Interest-Only Loans Can Buy More House and More Trouble
They're spreading like wildfire--interest-only mortgages appear
to be the panacea for rising home prices and the incomes that
can't quite catch up. You can buy "more house" and have a low
mortgage payment and a big tax deduction. Who wouldn't want one,
right?
Well, a large number of consumers are getting into these loans
when they shouldn't. Interest-only mortgages work well for some
individuals and are dangerous for most others, yet the number of
interest-only loans is rising rapidly.
Take a look at San Diego. In 2004 almost half of the mortgages
required interest-only payments in the first few years according
to a study done by LoanPerformance, a San Francisco--based real
estate information service. Could this have something to do with
the housing market? You bet it does. Are home prices rising
faster than salaries and incomes? They sure are. So how is one
supposed to afford a house in such an expensive housing market?
You guessed it--an interest-only loan.
Interest only-loans were originally aimed at more sophisticated
investors who wanted to leverage their income by re-directing
what would have been the principal portion of their payment to
higher yielding investments that exceed the rate of their home
appreciation. These types of investors typically have more
assets and financial discipline than most and therefore aren't
as likely to get in as much trouble with such a loan.
Today, interest-only loans are being utilized by borrowers who
are trying to leverage debt. What they are doing is getting more
debt for their buck; they're borrowing more money but keeping
their payments low (initially) in order to compete with other
buyers in sellers' markets. Here are some of the potential
dangers that
face such borrowers:
* If the principal balance isn't being reduced, than no equity
is being built, and if home prices are stagnant during the
interest-only period and the borrower needs to sell, he'll need
to be able to pay sales costs out of whatever equity there is in
the house, if there is any. Remember, mortgage amortization is
in the borrower's control, appreciation is not.
* If there's a downturn in home prices, the borrower could end
up "upside down," meaning the mortgage balance on the property
could end up being greater than the property's market value. In
this case, the borrower would be responsible for sales costs and
the remaining mortgage balance which could lead to foreclosure.
Interest-only mortgages make sense for borrowers:
* who have seasonal incomes or earn commissions and/or bonuses
and have a desire to pay on the principal when it's convenient.
* upwardly mobile individuals who expect to earn more in a few
years and want to buy "more house" early on rather than later.
* who intend on investing their cash flow in higher yielding
investments or paying down high-priced debt.
Make sure you know what you're getting into with an
interest-only loan. Consult with your mortgage broker or lender
to know what the possible repercussions could be, and be sure
you're getting the loan for the right reasons. Eventually, you
want to own your home, and it's better to be planning on that
sooner than later.
About the author:
Brian Daniel is a loan officer for
http://www.bendmortgagegroup.com, a mortgage company in Bend,
Oregon. He is also the company's marketing coordinator. For more
articles visit http://www.bendmortgagegroup.com/Articles.
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