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Getting Good Value Personal Loans
Over recent years, personal loans have become a popular solution for many consumers looking to raise finance for a variety of purposes. You can get personal loans for all sorts of things, from debt consolidation to holidays, cars and other...
Home Loans - Dispelling The Myth
You have undoubtedly heard a plethora of advice when you mentioned you were considering buying a home. Everyone probably had an opinion, they always do. Some very well intended people probably gave you the worst advice you could possibly have...
Home Loans: Where Do I Begin?
So you've finally decided you've had enough of paying rent and want to jump into home ownership. Well you've got your work cut out for you. Plumbing problems are now your responsibility, not your landlord's. A nice, clean yard is also your...
Loans for Women : Personal Loans
Loans for Women : Personal Loans
If you can't get a loan at the bank, then you still have options
even though they don't look as tasty as a low APR loan. Women
with good credit can easily get a loan at their bank. What's a
good credit score?...
Property Loans - for greater flexibility and freedom
Each one of us needs money at one or the other time in our life.
You may wish to buy a new home. One can fulfill his or her
personal desires by withdrawing money from the savings account.
But, do you think it is right to withdraw the savings when...
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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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