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Interest-Only Mortgage
There are only two things people should keep in mind before taking
on an interest-only mortgage. The name interest-only mortgage is misleading.
If truth be told, there is no such thing as an interest-only mortgage.
In an interest-only mortgage, you will still have to pay for the loan
principal. When you get an interest-only mortgage, what you’re really
getting is an interest-only payment method which you can combine with
other traditional mortgage types.
The other thing you need to keep in mind is that the stated benefits
of interest-only mortgages are exaggerated. In a standard mortgage,
95% if each dollar paid to the lender goes to the loan interest. Thus
on a $100,000 standard loan with 6% interest, the total payment would
be $600 with the $500 going to interest and the other $100 for equity.
A Brief History of Interest-Only Mortgages
Interest-only mortgages are not relatively new concepts. The idea
behind interest-only mortgages was spawned from the more flexible
and more inventive jumbo mortgage markets. Because of this, interest-only
mortgages are traditionally a loan type preferred by savvy investors
and well-heeled clients who want to use the principal portion of their
payment on other more productive investments.
Because interest-only mortgages are jumbo loans, the difference in
monthly payment grows with the larger loan amount. For example, in
a $100,000 interest-only mortgage loan, the per month difference is
$100. If the loan is worth $1,000,000, then the difference per month
grows to $1,000, a substantial amount that can be put to better use.
The savvy investor can make it so that his investment using the money
he gets from the per month difference growth of an interest-only mortgage
can increase within a short period, thus leveraging incomes to build
assets.
This is partly the reason why interest-only mortgages are still preferred
by big-time investors. However, it is only natural to assume that
there are some considerable risks associated with an interest-only
mortgage, especially when it comes to stocks.
Interest-only mortgages have payment periods based on adjustable rate
mortgages. This however is not always the case. Interest-only mortgage
payment schedules are also offered in fixed rate mortgages as well.
Interest-only mortgages have also gone mainstream so virtually anyone
can borrow money with this type of loan.
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"The small landholders are the most precious part of a state."
- Thomas Jefferson
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Temporary Payment Periods
The payment periods for interest-only mortgages almost never run for
the entire term of the loan. Even with a fixed rate mortgage, interest-only
mortgages are still bound to be only temporary. And InterstFirst product
only lets interest-only mortgage payments for half of the total term.
The expiration schedule of an interest-only mortgage payment is usually
at the end of a set period. This makes interest-only mortgages compatible
to “amalgam” adjustable rate mortgages. When the interest-only mortgage
payment comes to an end your payment will then rise to include principal
and interest.
The great thing about interest-only mortgages
Interest-only mortgage payments also have their advantages. Borrowers
can find that there are various practical benefits that an interest-only
mortgage can offer. First is that, interest-only mortgages can help
you in accumulating assets. Because interest-only mortgages do not
demand so much during its initial years, you can use the payment differential
in a cash investment. The “spare” cash provided by interest-only mortgages
may also be used for college money, retirement money, and even as
a seasonal income factor.
Of course, you are the only person who can really tell if the mortgage
option is right for you or not. However, awareness of the issues that
surround those choices is a good way to make a more informed decision.
Additional Resources and Latest News:
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GE Money added to Paradigm lender panelsMyIntroducer.comFrom today members of both Paradigm Mortgage Services and PFA will be able to access the range of mortgage products currently offered by GE Money Home Lending. The lender offers mortgages on an interest-only and repayment basis; ...and more » |
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Address the mortgage issueMail TribuneLenders often sell their home loans soon after they're signed, retaining only their role as mortgage servicing companies. The lenders' disincentive to proceed with foreclosures has been weakened, sometimes to the point at which there's more money to be ...and more » |
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