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Interest only mortgages are everywhere, You keep hearing that commercial about them.
They
guy who is trying to help you get financed even mentioned it a few
times. You've been told about what a wonderful benefit it is to have a
low, low mortgage payment and you still get the wonderful tax
write-offs. You don't have much a down payment and with the taxes and
insurance your monthly obligation will be more than you can afford if
you can get a conventional loan.
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 mortgages." Think about it. If you just paid
the interest on your home, would you ever start paying on principal and
could 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,
therefore they essentially buy your house and you pay off your debt to
the bank; you pay it back. How can that happen if you're just paying
interest? More accurately, interest-only is a temporary reprieve of
paying off a traditional mortgage.
You may be prolonging the inevitable and eventually making it more
costly on your part. Far too many people are in debt way over their
head because they took advance of an attractive off to buy now and pay
later. They didn't think they'd have any problem making the $45 a month
credit card payment, but they didn't anticipate the additional $50
interest fees on top of that. With an interest only payment you're
keeping the principal at the full value and will continue to pay
interest on it at 100%. Whereas if you didn't accept the offer for
interest-only, you'd be slowly dwindling down the total amount that
interest is calculated on.
Most interest-only payment schedules are offered on Adjustable Rate
Mortgages (ARMs), but they can also be found on a fixed rate mortgage.
Interest-only payment 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 mortgages 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 payment method may be the way to go. They won't be
building equity and making money that way. However, 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 an interest-only payment may be ideal for you.
There's a great deal of fine print to any mortgage. Evaluate your
own goals; just be vigilant when reviewing the terms on the loan you're
considering.
Why not look at the Agony Aunt Mortgage Advice site for useful links and advice.
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