Interest Only Mortgage

The interest only mortgage is something only a young girl with a computer book and an inquisitive nature could get to the bottom of.

Interest Only Mortgage - No Gadgets, Just Smarts

Oh Gosh Brain! How are we going to get him out of this one? Ok, ok, lets see here - he'll probably go after the most difficult, most appealing mortgage first, and that would be...an interest only mortgage! They are very dangerous and very confusing,. and more and more people are taking then out each an every day. Lets see here, what do we need to know about an interest only mortgage...

Penny analyzes the interest only mortgage

Fist off, an interest only mortgage doesn't mean you are only obliged to pay interest for the life of your loan - that would be crazy and impossible to boot; you still need to pay off your loan principle. But with an interest only mortgage that repayments is simply delayed:

• people with bad credit and low incomes, or someone wanting to buy a larger house than currently can afford, can find their solution with an interest only mortgage. It works just like any other ARM, yet with one huge discretion - for the first few years you will pay absolutely nothing toward your principal.
• There is an initial interest only term, anywhere between 1-10 years, where you will be paying just the interest. Mortgage rates are so low right now that lenders are offering an interest only mortgage with down to 1% advertised APR. 1%? How can that be? Let me see - some computations here, a home mortgage there, exponent, exponent, carry the six and...
• Got it! Those incredibly low rates you see advertised for interest only options are based off mortgage loans with a 20% down payment to someone with impeccable credit, a great income and really no need for the interest only option. Most if us can expect the same rates from a standard loan, just without the principal.

Penny weights the interest only option

If my computer book is right, which I'd like to think it always is, an interest only mortgage is a great opportunity on the surface, a chance for people of all qualifications to actually, instantly own a home or take out a second mortgage. It is a quick fix to a big problem, not having enough money now to meet the down payment and monthly payment demands of a high-priced housing market. Yet an interest only mortgage will always come back to get you, and according to my calculations the results will not be pretty:

• as an ARM your rates are subject to changes in the financial markets, and all indicators are pointing to an increase in rates.
• Indicators are also pointing to a decrease in home appreciation rates across the country. The reason an interest only mortgage is such a popular option is because people could gain equity without paying for it with homes appreciating at such high levels. But remember, your home is only worth as much as people are willing to pay when you sell, and there is no guarantee that the high price you pay now for a home won't actually go down.
• You are still responsible for the loan principal, and repayment kicks into high gear the day after your interest only period.

If someone we're to take out an interest only loan without understanding the complete future repercussions and without being prepared an increase in future monthly payments - why Brain they'd be crushed beneath mountains of unexpected costs! Quick! Show Uncle a mortgage calculator with a complete amortization schedule and get him away from interest only quick!