he market for real estate among real estate investors. It
in the United States seems permitted the buyer to make low
to have slowed down from monthly payments for the first
the fever pitch of just a year few years of the loan that
ago. There are a number of compensated the lender only for
reasons for this; rising interest the interest that accrued on the
rates and sticker shock among loan. Payments did not apply even
buyers are just two of them. one cent towards reducing the
Whatever the reasons, sales of principal. After a period of 3-5
homes seem to be slowing, and years of interest-only payments,
that trend will probably continue higher payments that applied a
in the near future. portion to the principal would
kick in. Buyers, especially
That being the case, several investors, weren't too worried
types of loans that have recently about not paying towards the
been very popular have suddenly principal, as prices were rising
become poor choices of financing so rapidly that the buyers were
for those buying homes. While building equity in the property
some types of loans, such as the just the same. That is no longer
30 year, fixed-rate mortgage, are the case, and anyone who takes
usually safe choices, others, out an interest-only mortgage
such as the interest-only today might find that, in five
adjustable rate mortgage (ARM) years time, he or she owns just
and the Option ARM have suddenly as little of the property as they
become not only poor choices, but do today.
potentially dangerous ones, as
well. The Option ARM is even worse in
today's climate. This somewhat
The interest-only ARM was a great flexible loan allows the buyer to
choice just a year or two ago make four choices each month
regarding how much to pay – a will actually increase. When
"minimum" payment, an prices were going up, this type
interest-only payment, a payment of loan was seen as bullish. With
based upon a 30-year repayment house prices stabilizing, and
schedule and one based upon a even beginning to fall in some
15-year repayment schedule. Those markets, this type of loan will
who really cannot afford the leave many borrowers owing more
house in question most often use than their homes are worth.
this type of loan. The touted
"minimum" payment, which seems As times change, so do the needs
quite small, is really of homebuyers. At the moment, it
misleading. That payment not only seems that housing prices are
contributes nothing towards the either stabilizing or falling.
loan principal, but it doesn't That being the case, a loan
even cover that month's accruing designed for people in a market
interest on the loan. After where prices continually go up is
making a minimum payment, the probably a bad choice today.
outstanding balance on the loan
About the Author:
©Copyright 2006 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including http://www.homeequityhelp.net, a site devoted to information regarding home equity lending.
