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Guide to Bridging Loans
Here is a useful guide to bridging loans. This is a loan that is usually taken out to solve a temporary cash shortfall that may arise when buying a property or business. It's basically a very short term mortgage. Like a mortgage, it's a loan that is...
No income verification loans – when income doesn’t show on paychecks
Financial statements, salaries, income proof, documents, paycheck, W-2 forms, 1099’s - there is an exhaustive list of some of the forms that you may require to provide for a loan. Income documentation is not always easy for someone who is self...
Payday Loans: An Overview
Payday Loans: An Overview
Payday advance loans are very short term loans of
usually one or two weeks, which are to be repaid when you get
your paycheck. The objective of taking payday loans is to tide
over unexpected...
Secured personal loans - single solution for all your financial ills
The general opinion of people about secured personal loans has
undergone a sea change. They are no longer considered as evil as
in the yesteryears. They have become as much a part and parcel
of the present day's individual as some of the...
Used Car Loans - 3 Tips For Financing Your Used Vehicle Online
Financing the purchase of a used vehicle can be done through the convenience of online car loan lenders. Through their websites you can request quotes, compare terms, and even apply online. Online car loan lenders save you time and money by making...
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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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