ising home prices, otherwise might. The buyer's
particularly on the East income will probably increase
and West coasts have put over time, making it possible to
the costs of home ownership afford the higher payments that
seemingly beyond the reach of will come when the principal is
many. And yet, home ownership is finally added to the payments.
up nationwide, and the percentage
of Americans who own their homes The downside to an interest-only
is the highest it has ever been. mortgage is that no equity
How is this possible? accrues in the home if the buyer
isn't paying any principal. For
There are more different types of many Americans, the equity in
mortgages available to home their home is their single
buyers than ever before, and one largest financial asset, so
that is growing in popularity is taking out a mortgage that
the interest-only mortgage. With doesn't build equity would seem
an interest-only mortgage, the to be a bad idea. Equity has long
buyer pays no principal for the been used as a last resort source
first few years of payments. The of funding for emergencies. And
period of time varies, and is yet, with the price of homes
typically anywhere from one to rising so quickly these days,
five years. At that time, the many buyers don't seem to care.
principal is added to the Equity can be built two ways -
mortgage payments and the amount either through paying down the
of the payment increases. By principal or by an increase in
keeping the payments lower for the market value of the home. If
the first few years of the the value of your home increases,
mortgage, the interest-only so does your equity, even if you
mortgage allows buyers to obtain are only paying interest on the
a more expensive home than they mortgage. This is great, so long
as home prices continue to wishing to sell could find that
increase. But what if prices they owe more money than their
fall? home is worth and that they have
no equity.
There are potential problems with
interest-only financing. The interest-only mortgage is a
Interest-only mortgages have useful tool to help people buy a
variable interest rates. If home they otherwise might not be
interest rates rise, mortgage able to afford. Prospective home
payments will increase. If buyers should consider whether
payments increase beyond the taking out such a mortgage is a
level of affordability, good idea, or whether they might
homeowners could be forced to be better off buying a less
sell their homes. This could lead expensive home.
to a glut in the housing market,
causing prices to fall. Owners
About the Author:
"©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including http://www.End-Your-Debt.com, a Website devoted to debt consolidation information and http://www.HomeEquityHelp.net, a site devoted to information on home equity loans.
Source: www.isnare.com
