interest only equity : Be Careful

2008-04-07 12:48:04

( Financial )



Thinking of taking out an interest only mortgage? Do you feel that an interest only mortgage rate is the best option for you? Be cautious – there are many sides to interest only equity.

Yes, there is a positive aspect to interest only equity. The power you get from home equity based on interest only payments can be amazing. It’s possible to have a home equity loan, no closing costs included for a low, low monthly payment and a few thousand dollars equity in cash. And it is surprisingly easy to get a loan like this for interest only equity if you are considering either investment or residential real estate.

The terms for these loans vary – up to 30 years – although they are usually completed in 10 to 15 years. You have a chance of just paying the interest (a low, low payment) – but you have the choice of paying the principal as well. The attractive thing about home equity loans is the equity you can gain if the price of the house goes up. Even if you take out a 100% loan of the equity – if the price of the real estate rises – the gain is all yours. Usually you need good credit to take advantage of this. However even if your credit is flawed, it is still possible to get equity. Probably you’ll get less but pay more. And what if you don’t qualify? Don’t worry – take the cash out refinance loan option. This type of loan gets you the equity you need by giving you a new first mortgage for the whole amount on your house – you get what is left over. It sounds complicated but it’s really not. It’s just a wealth building system using the mortgage game.

Yes, interest only mortgage is the way to go – but only when the interest rates are up.

It is usually the uninformed who will tell you that interest-only mortgages are dangerous. You can turn a deaf ear if mortgage rates are moving upward.

It’s nothing new that home loan rates go in cycles. In 2005 when interest rates dropped everyone wanted a fixed rate mortgage. At the time this made sense. Why go for an ARM or interest only loan when a fixed rate mortgage is ideal – look into that excellent rate and just wait for the term of the mortgage.

However, when rates are moving upward, interest only mortgage is a really great product. What is, in fact, the best option to consider is a hybrid ARM together with interest-only features.

But if you want nothing to do with an ARM – take a look at what an interest-only mortgage offers.

Interest only periods are usually offered for 10 to 15 years which converts to a fully amortized 30 year loan thereafter. If the interest rates are high the savings you make every year can run into thousands at a modest estimate.

If your lender has a home loan program with a larger differential between the fixed rate and interest only rate, you save even more money.


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