hey're spreading like than salaries and incomes? They
wildfire--interest-only sure are. So how is one supposed
mortgages appear to be the to afford a house in such an
panacea for rising home prices expensive housing market? You
and the incomes that can't quite guessed it--an interest-only
catch up. You can buy "more loan.
house" and have a low mortgage
payment and a big tax deduction. Interest only-loans were
Who wouldn't want one, right? originally aimed at more
sophisticated investors who
Well, a large number of consumers wanted to leverage their income
are getting into these loans when by re-directing what would have
they shouldn't. Interest-only been the principal portion of
mortgages work well for some their payment to higher yielding
individuals and are dangerous for investments that exceed the rate
most others, yet the number of of their home appreciation. These
interest-only loans is rising types of investors typically have
rapidly. more assets and financial
discipline than most and
Take a look at San Diego. In 2004 therefore aren't as likely to get
almost half of the mortgages in as much trouble with such a
required interest-only payments loan.
in the first few years according
to a study done by Today, interest-only loans are
LoanPerformance, a San being utilized by borrowers who
Francisco--based real estate are trying to leverage debt. What
information service. Could this they are doing is getting more
have something to do with the debt for their buck; they're
housing market? You bet it does. borrowing more money but keeping
Are home prices rising faster their payments low (initially) in
order to compete with other sense for borrowers:
buyers in sellers' markets. Here
are some of the potential dangers • who have seasonal incomes or
that face such borrowers: earn commissions and/or bonuses
and have a desire to pay on the
• If the principal balance principal when it's convenient.
isn't being reduced, than no
equity is being built, and if • upwardly mobile individuals
home prices are stagnant during who expect to earn more in a few
the interest-only period and the years and want to buy "more
borrower needs to sell, he'll house" early on rather than
need to be able to pay sales later.
costs out of whatever equity
there is in the house, if there • who intend on investing their
is any. Remember, mortgage cash flow in higher yielding
amortization is in the borrower's investments or paying down
control, appreciation is not. high-priced debt.
• If there's a downturn in home Make sure you know what you're
prices, the borrower could end up getting into with an
"upside down," meaning the interest-only loan. Consult with
mortgage balance on the property your mortgage broker or lender to
could end up being greater than know what the possible
the property's market value. In repercussions could be, and be
this case, the borrower would be sure you're getting the loan for
responsible for sales costs and the right reasons. Eventually,
the remaining mortgage balance you want to own your home, and
which could lead to foreclosure. it's better to be planning on
that sooner than later.
Interest-only mortgages make
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.
Source: www.isnare.com
