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What’s a 125?

Let's start this article with a simple question, what is a 125? No it's not the speed limit of the Audubon, nor is at the calorie count on a Snickers bar; today, it is the amount of money you may borrow against your home. Does this seem to make sense to you? That the lender would loan you more money than the home is actually worth? It doesn't make sense to me either. But, it doesn't have to make sense. The 125 is an actual loan product being offered to the consumer today as enticement to borrow money from a particular lender. In today's market of racing real estate prices and the extremely low interest rates offered by mortgage lenders, the 125 has become a popular product.
You may have even seen all the television ads that promote the 125 mortgage; in fact it's been one of the most highly promoted products to enter the market. Do you understand exactly how the 125 works, however. Many consumers truly do not understand the implication of a 125 mortgage and their five year future. 125 mortgages work in this way: your potential home is worth $100,000, and you're allowed to borrow $125,000. The seller is only asking $85,000 for the hundred thousand dollar home, this means you’re able to borrow $40,000 above the asking price for the home. That leaves an awful lot of money on the table, and you may do what ever you choose with the $40,000. This is an awfully tempting situation for many young consumers.
What might they choose to do with $40,000? Some may buy cars, some may take vacations, and some may simply spend $40,000. Is this the wise choice? The choice for the mortgage lender: absolutely, for the consumer probably not. Although the interest is completely tax-deductible, and the payment may be affordable, it is not allow the consumer to build equity in their home. It promotes excessive spending habits without regard to the consequence of a mortgage that is more than a home is actually worth.
What happens to the consumer if they fall behind in their payments? What happens if they lose their job? Do they have any established equity upon which to draw? No they don't. Nor will they be able to sell their home in order to cover the mortgage loan that exists on their home. You see not everyone operates under the best case scenario. Sometimes tragedy strikes, sometimes there are just circumstances beyond our control; when this happens if you have no equity, if you have no savings you have no home, but you still have a mortgage.
The 125 mortgage is a great advertising tool, it's a great way to sell mortgages; but it's not often a great buy for the consumer. Unless, you take the remaining funds, the $40,000, and make improvements upon the home and reinvest the money in the home. Now the home’s value has increased, is now worth $150,000 and you have only a $125,000 mortgage. From the consumer standpoint, this is a great benefit it and it was only possible by way of the 125 mortgage.
For the mortgage lender it should be through this type of advertising that we encourage consumers to take advantage of a 125 mortgage; but this is not often the case many times we appeal to consumers based on all the opportunity to spend the money a luxury items. Items we could not under normal circumstances afford: a new car, a vacation to the Bahamas, or any off a number of items that should be purchased only, as a luxury.
Today's real estate market and real estate mortgage products are more numerous than ever before. We have more choices, we have more opportunity, than at any other time in recorded real estate history; but we must be careful to avoid abusing those choices and opportunities. The mortgage lenders, the traditional lending institutions, and the consumer do not often operate with those consequences in mind. Adequate legislation and adequate education will only go so far; the reminding responsibility is a moral obligation that cannot be legislated. It can only be encouraged. So let me take a moment to encourage you, the consumer to make sure you fully understand the applications of your choices, and the 125 loan.

Buying or Selling, is the Mortgage Your Only Option?

Today, thanks to the ever-increasing use of the internet to seek out homes for sale, and the increased participation of homeowners in the buying and selling process, there is greater interaction between the buyer and seller. Not only is this good for public relations, it is also an excellent opportunity to explore other funding options, for the buyer and for the seller.
It is normal on the part of the buyer to assume their only option when purchasing a home is to obtain a mortgage, but the traditional lending process. This is not always the case, and today more than ever, buyers and sellers are coming together with creative and accommodating ways to affect the purchase, or sale, of the home depending upon your status as buyer or seller.
Quite often, individuals interested in purchasing a home lack the 20% down payment often required from the lender. Provided the seller has established equity of the home, there are other options for the buy and sale agreement. Seller financed mortgages are the most common alternative mortgage option exercised; seller financed mortgages however, are not the only option that can be considered. In this article, were going to take a look at some of the alternative mortgage options that are rarely exercised, but that do provide tremendous benefit to the buyer and seller.
As a seller, the conditions must exist that allow you to offer the buyer alternative options. Your mortgage balance must be considerably less than the fair market sale price or your hands are basically tied. Imagine a scenario: you're ready to sell your home, the buyer is ready to purchase your home, and they simply do not have a 20% down payment. What they do have is a 5% down payment, and the desire to work with the seller and the mortgage lender. You're asking price for the home is $80,000 and the appraised value of the home is $85,000; your existing mortgage is $50,000 and the lender requires the proposed buyer to provide a $16,000 down payment. How can a solution be reached? If you, as the seller are willing to take a second lien on the property, there is a workable solution. The fact that the home appraises for more than the asking price, automatically provides the buyers with a $5,000 level of equity, so they only need $11,000 more to reach a 20% down payment. They have $4000; in order to accommodate the buyers, you could accept $74,000 in upfront mortgage money from the lender, and take a second lien on the $6000 difference. This method works only if you’re willing to take the second lien, and the buyers are credible and reputable individuals.
Taking second liens or second mortgages are increasing in popularity as a means to sale increasing value real estate in today's rapidly expanding market. There are other spins offs from the basic formula described, however the scenario above is the most common and provides the buyer and seller with the basis for expanding with creative add- ons. Of course, the seller financed mortgage is still the meat and potatoes of the alternative financing industry.
How does the seller financed mortgage work? Generally, it works in this manner: if the seller owns the home outright he or she may choose to finance a mortgage for the buyer, and set up an amortized loan. Thanks to the readily available personal computer, loans can be constructed that would have only be available via an accountant or lending institution, 20 years ago.
Of course, how you decide as a buyer or seller to ultimately close a deal, will depend on many factors, this may be just one of the more important aspects. How well you know each other, credit ratings, and the dollar value of the mortgage will also affect your decision.
Regardless of the final decision, the opportunity exists to explore other avenue other than the traditional mortgage lending institutions, or mortgage companies. And, sometimes, you never know, the deal from the seller financed mortgage may open more doors than just a mortgage for homeownership!

Financial Planning and Interest Only Mortgages

I have observed many changes in my life over the course of living it, and I can tell you that as you grow older, Caution will become your friend; when you’re young, you simply throw him to the wind. As you get older, you wait for him to blow by, and then you reel him back in, why? Caution has only a few friends, but several adversaries: Haste and Waste; after several trips around the block with these two, Caution begins to look like a much better friend.
Part of the requirement for being a friend to Cautious, is that you take the time to examine all your options, and make a good sound decision. This is when I was introduced to Financial Planning, 401(k) s, Retirement Funds, etc.
I’ve told this from a story standpoint, but it is in all honesty, the truth. As you get older you do become more cautious in your investments, with your time and your money. Interest only mortgages are one of those options, that if you’re investing in real estate for the short term, and you’ve consulted with a reputable financial advisor, you might want to consider. Investment portfolios do not generally include real estate, so more than likely this is a business venture or an investment business. In either situation, financial planning is a must. This is one of those options, that should however, be considered only after careful planning and thought. The trade off, may be or may not be to your benefit.
Long-term investments, those with capital gains, and purposes other than a quick profit, I don’t’ believe are candidates for the interest only mortgage. The interest only mortgage doesn’t offer much in the way of building and growing investment value, because you simply never increase the value of the asset to you. You increase the value of the loan for the lending institution, because you are continually providing a profitable situation for the lender. Your principal investment responsibility never decreases.
What about the short-term implications and your financial planning? Well, this leaves many doors unopened and many avenues unexplored. However, given the fact that you’re considering the impact of the interest only mortgage product on your financial planning expectations, there aren’t very many “short-term” considerations open for discussion. The only short-term advantage to interest only is that your monthly payment is often very low during the term of the interest only payment.
When you consider the impact your 401(k), an MSA, an IRA, or any other tax deferred savings or retirement program can have on your bottom line, the interest only mortgage doesn’t really have that much to offer in the realm of tax savings, or tax deferment; yes, it’s true that your mortgage interest is tax deductible, but not on a one-to-one ratio. Tax deferred retirement accounts, even SEPs, for the self-employed individual have a one-to-one ratio of tax savings.
Another long-term financial planning consideration: when you would normally have paid out a regularly amortized loan, you will still be paying on the interest only mortgage. What could the potential savings be, for you, if you weren’t still paying on a mortgage? The time value of money is a concept that few consumers ever learn to appreciate. It means the dollar you have today, will be worth less tomorrow than it is today, therefore saving today yields a much better benefit than waiting until you’re 35 or 40 to begin saving and planning for retirement.
Quite often, your home is your greatest asset, and is the only savings that many consumers have managed to accumulate. If the only payments you have made were for the interest due on the principal, you effectively have no accumulated savings. Now, that might not be an issue for someone in their 20s or early 30s; however, by the time you reach your 40s, you have begun to contemplate retirement, and ways to save for that phase of your life.
As I stated earlier, caution and good sound financial planning may determine that an interest only mortgage will benefit you greatly. But, I would only consider this option only after I had taken time for careful consideration and good financial planning.

Government Approved Mortgage Loans

What kinds of government approved mortgage loan programs are available for the lender today? There are actually more programs available today than any other time in recorded mortgage history; and the ability to qualify for these programs is an all-time high. In this article were going to take a look at FHA, VA, Fannie Mae, Freddie Mac, the HECM, and the SNAP programs available thanks to government regulation of funding.
And FHA mortgage is the term used to describe a direct primary market lending product. What are FHA loans and how do you apply? Your options for application now are through an approved lender, or via the Internet. FHA, or the Federal Housing Authority was established in 1934 as a part of Franklin D. Roosevelt's “New Deal”. It was the president’s plan to help the country get back on its feet at the end of the Great Depression. FHA loans with a way to provide the funds needed to construct low income housing and provide Americans with the dream of home ownership. It worked, tremendously well and in 1965, the FHA became a part of the Department of Housing and Urban Development. In the decade since its inception, the FHA has become the largest insurer of home mortgages and has allowed more Americans to live the dream of home ownership at a rate that is in comparable to that of any other country.
The VA loan is simply a spin-off of the FHA loan open only to veterans having served in the Armed Forces. The VA loan was conceived in order to provide returning veterans with the opportunity to purchase homes and start their lives again.
Fannie Mae, or the Federal National Mortgage Association, was established to provide a secondary market for the FHA mortgage loans. In 1938, when President Roosevelt established the Federal National Mortgage Association it was intended to provide a secondary market for lenders to sell mortgages in order to originate new ones. Freddie Mac, followed in a few years, and was implemented to serve a broader base of mortgages. Although Fannie Mae and Freddie Mac are not direct lenders, our current mortgage system would not be in operation nor would we have experienced the success with homeownership we enjoy today.
The home equity conversion mortgage or HECM is a HUD supervised program that works with FHA homeowners who are over the age of 62 to remain in their homes by allowing them to access their home’s equity, sometimes referred to as the reverse mortgage.
The safe neighborhood action plan or SNAP is an FHA supervised effort to improve urban communities. The problem focuses own illuminating drug abuse and cry him in urban areas by providing education, school activities, and assistance for project residents.
Now that we've covered all the government approved mortgage loan programs, let's take a look at the FHA mortgage options available. FHA offers adjustable rate mortgages, fixed rate mortgages, energy-efficient mortgages, graduated payment mortgages, mortgages for condominium units and growing equity mortgages. The more commonly used mortgage products by the individual residential homeowner are the adjustable rate mortgage the fixed rate mortgage and the energy-efficient mortgages. As we move closer to a more energy efficient energy conscious nation, I believe we will see an increase in the energy-efficient mortgages at a greater concern on the part of HUD that will make room for an increase in energy-efficient mortgages. The graduated payment mortgage is an option for FHA homeowners who currently have low to moderate incomes but expected to increase substantially over the next few years; this can be compared to a balloon note or the adjustable rate mortgages in use today.
As you can see, the government has played a tremendous role in making possible the dream of homeownership in this country. Yes, I believe we can say today more Americans live the dream of home ownership than any other nation in the world thanks in great part to the fact that President Roosevelt stepped in at the end of the Great Depression and provided a way to restore faith in the American way of life.

Myths and Mortgages

Some of the mortgage companies today, sell their mortgage packages with every kind of mythical benefit known to man, from the belief that interest only is a real mortgage that will eventually payout (slight of words, there) to the belief that an interest only mortgage carries a lower interest rate(which is does, but only for the short term). Let’s start with some of the more traditional loans, and move into the weird and unusual.
There has been a tremendous jump in the available interest only mortgage packages in the last three to five years so maybe we should take a minute to break down some of these mortgages into a language everyone can understand
There’s a 3/1 ARM. A 3 year ARM, means that the interest rate is locked in for 3 years. For the first month, the interest payment is only 1%, for the next 3 years following only the interest is due as the monthly payment. After the 3 year term, and for the remainder of the life of the loan, normally thirty years, the interest rate will change, and the payments will begin to include principal and interest.
There’s a 5/1 ARM. A 5 year ARM, means that the interest rate is locked in for 5 years. For the first month, the interest payment is only 1%, for the next 5 years following only the interest is due for the monthly payment. After the 5 year term, and for the remainder of the life of the mortgage, normally thirty years, the interest rate may change, and the payments will begin to include principal and interest.
These mortgages also come in 7/1 and 10/1 ARMs, but analysts really don’t recommend extending the interest only option out that far, since too many things can change before the 7 or 10 years is up.
The 10/30 interest only mortgage works in the following way: you borrow money in the form of a 30 year mortgage, with a fixed interest rate. The first 10 years are interest only payments, with the full amount of the principal being amortized (interest payments included) over the last 20 years of the loan.
The 15/30 interest only mortgage works in the following way: you borrow money in the form of a 30 year mortgage, with a fixed interest rate. The first 15 years are interest only payments, with the full amount of the principal being amortized (interest payments included) over the last 15 years of the loan.
These mortgages are really appealing to the consumer with any sort of investment knowledge. If I were going to borrower with the interest only mortgage option, it would be one of these two, the 10 or 15 of 30.
Now what other myths can we find? There’s the belief that the home mortgage income tax deduction is a substantial benefit to the taxpayer, and that 1% interest only loans are for the life of the loan! Ha! There’s also the balloon note myth that proliferates the belief you can automatically refinance through your current lender when the note matures, or that adjustable rate mortgages are a better deal than fixed rate!
Another mythical idea is that the real estate market can’t go bust. An exploding growth rate in the mortgage loan industry, and the continued surge in real estate prices, has put the interest only mortgages in a huge category all their own. Up from the first part of the century, the interest only mortgage loans are now garnering nearly one-fourth of the mortgage loan market. That kind of growth is almost frightening, to even the most experienced lender. Can you imagine the possibilities, say four to five years from now, when many of these loans come due to pay the interest and the principal; what happens if our economy isn’t still a thriving bustling place?
The benefit of the interest only loan is that the consumer is eligible to buy much more house, than with a standard mortgage. That’s great if you’re certain in a given period of time, you’ll be able to afford a higher mortgage payment. But is anything guaranteed and given in this day and time? What if you can’t afford the payment when the interest only term expires?
We have only to look at the disastrous consequences of the crash of the stock market during the 1920s to appreciate where this may be leading us today. Many people had financed their homes with an interest only mortgage, and when the stock market crashed and there was no work, they lost everything, including their homes.
So, we not only promote mythical nursery rhymes, we promote mythical mortgages, too!

What about Taxes and Your Second Mortgage?

For the average consumer who has managed to acquire credit card debt, automobile loans, and various other small debts, is the second mortgage loan an answer for the consolidation of debt and a tax reduction? Quite often the answer to this question is yes. Second mortgages that have traditionally been used in areas of home improvement, funding college educations or business startups are now being considered as a means to eliminate or consolidate high-interest credit card debt and create a tax deduction at the same time.
For the average consumer, using second mortgage loan money to pay off credit card debt or to consolidate individual personal loans does not eliminate the possibility of a tax reduction; especially if that average consumer does not already own a second home. The only problem here seems to be that we’re replacing credit card debt for second mortgage debt; what do we then do with the credit card we’ve paid off? The smart consumer cuts them up.
How does a second mortgage affect your tax liability at the end of the year? A lot of that will depend on your income levels, your medical expense, and your other interest deductions. Mortgage interest expense is deductible on the Schedule A “Itemized Deductions” form of your individual or personal tax return. The Schedule A, however is not a straight tax reduction tool. Tax reductions, or deductions, carried forward from the Schedule A are a percentage of your AGI, or your adjusted gross income. Your adjusted gross income is based upon your income less certain expenses and deductions from Schedule Cs, Schedule Es etc. etc. Can you now see where this might be a little complicated?
Let's throw something else into the mix: if you're an investor, especially in the real estate market, your mortgage interest may not be deductible, period. Mortgage interest on your first home and on your second home is a tax-deductible interest; if however, you happen to be an investor in the real estate market the ability to make it clear distinction between first and second homes versus investment property becomes much harder to prove. Is the home a second home with deductible mortgage interest expense, or is it an investment? Of course, for investors interest expense on a loan for investment purposes is fully tax deductible; no percentages to work with at all.
Now let’s ask another question, if you decide to take out a second mortgage could you better invest your money? What a 401(k), an IRA, or an MSA be a better benefit when it comes tax time versus leading the money in your home as equity? This has been a question long debated by financial analysts, tax attorneys, and fairly tax proficient homeowners. How does the equity better serve the homeowner? As a savings account, which is really what the equity in your home turns out be, or as an investment tool that can be used to increase your retirement savings? There are other factors to be considered here: such as penalties for early withdrawal, risk ratio versus profitability ratios, and which programs reduce tax on a one-to-one ratio? Unless you already have some general knowledge of the tax system, it can be more expensive to determine tax savings than you would actually save.
As you can see there are many, many ways to affect your tax liability, your tax deductions, or affect a tax reduction; the correct answers are highly dependent upon the individual situation and the individual objectives. The only way to accurately determine the better benefit is to sit down with a financial advisor, your tax information, and evaluate your long-term objectives.
Does the average consumer ever take the time to accomplish this? As a general rule the answer is no. Most consumers never take the time to look past next month. Over the course of a stressful and busy work week retirement planning, tax deductions, and income producing benefits never cross the consumer's mind. For those individuals who truly anticipate and receive benefit from tax planning in relation to their mortgage interest, there are many more individuals who never even contemplate that there might be a savings. Maybe, we should just skip this question.

Is Your Credit Working Against Your Mortgage Options?

Okay, now here’s an interesting spin on an already risky product, let’s give the bad credit crowd or the low credit score crowd, a chance to make an even worse decision, and finance a home they can’t really afford and obviously will have trouble making on-time and dependable payments.
Sometimes, the products and situations that you see in the everyday world of researching these loans, is truly amazing and this is one of those classic situations. There are actually mortgage companies that advertise these interest only mortgage options for the consumer with the bad credit or slow credit record.
Now, what I’d like to know is why the mortgage company, in all good faith, would want to take a risk such as this. . It's risky financing mortgages for consumers with bad credit, even if you’re financing with good solid collateral, and it is well within their means to pay. You take the consumer and the mortgage loan outside those realms of operation, and you’re just simply a problem waiting to happen.
Maybe we should have an agency that’s known as the “mortgage police” and when there’s a clear and evident violation of just good sound common sense, a whistle blows; the computer locks up, and now enters the mortgage police. I truly believe the consumer, if not the mortgage company would be a lot better off, especially when the consumer has time to really absorb the basic facts about interest only mortgages, and the mess they can make of your finances; in the case of the bad credit consumer, the further mess they can make of your finances.
With all the government control that regulates the mortgage loan industry, and all the statistics that are published about the consumer with a bad or slow credit rating, who do you suppose thought it would be a good idea to give them an interest only mortgage, that they more than likely will have further trouble paying? You wonder if Alan Greenspan is aware of situations like this, and if he takes it into consideration when raising the prime lending rate? Do you suppose there’s a number factor for the “really going to default on these mortgages” segment of his equation that determines our prime rate?
Then you have the individual who simply has a low credit score because he has too much credit on revolving charge cards, store cards, etc. How does this affect his or her ability to get a loan? Well, it doesn’t necessarily prohibit their ability to secure funding, of course not. What it does accomplish, and this is where the mortgage and lending companies have decided to make a lot of profit, is up the qualifying interest rate. So, if you’re credit score is low, you will pay a higher rate of interest. You can still obtain the mortgage, but it will be at several points higher than an individual with an excellent credit score.
As our country spirals ever further into debt, (for if you bother to read any of the headlines lately, you know that we are at the lowest point ever in home mortgage equity. Savings are at a negative balance, and we continue to spend, spend, spend) we do not attempt to encourage a more saving attitude in our consumer advocacy branches of government; we make it easier to spend more. With the passing and implementation of the new bankruptcy laws, I believe we will begin to see even more Americans in trouble with their finances, and offering them more credit, interest only options, and second mortgages does not serve them well.
Let’s hope Alan uses more foresight and plain good business sense than our mortgage loan brokers, especially the ones that came up with this genius idea!

I truly hope you’ve enjoyed these articles on mortgage products, and that you have gained some insight as to the type of product you might need, what you might want, or in some way found the information helpful. As always, when you approach a major, life-changing decision such as purchasing a home, you should consult with a financial advisor and your local lending institution. There are so many products available today, that unless you have some knowledge of the lending process, and the type of home you’re purchasing, you will find that these articles will help to point you in a direction conducive to your situation.

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How Real Estate Drives the Interest Only Mortgage Market

The real estate market and the mortgage market are great friends; they generally are seen hand in hand, wherever they may go! One fuels the other’s ambitions. Never a truer statement has been made and they (the real estate and the mortgage market) seem to feed off each other, as they both have continued to grow over these last few years.
If a potential buyer has the greater possibility of securing a mortgage, the greater the opportunity to sell a home or buy a home becomes; Whenever the opportunities increase for the buying and selling of real estate, then the prices for real estate increase. Can you clearly see the relationship now and how one drives the other? As the mortgage market has expanded, and the possibilities broadened, so have the prices of homes, the new home construction market, as well as the commercial development of real estate.
The potential for problems exist when this all happens too quickly, or when the growth in one area exceeds the average growth rate of other areas. This is the case with the real estate market and the interest only mortgage. Much of the growth in the mortgage market has been with interest only loans. Many analysts put the interest only segment of the mortgage market at almost 23%. That’s a huge hunk of the entire mortgage market and this segment has been responsible for most of the overall growth. It would also seem that it has played a tremendous role in fueling real estate prices. Is this a rollercoaster ride, waiting for the drop, if so, let’s hope we’re all buckled in!
Let’s take a moment to look at the four areas that contribute to this continued upward growth, and their impact on real estate.
The price of existing homes on the market is a pretty easy one to figure out; if you have your home for sale, quite naturally it will bring a comparable price to the other homes in your area. How does this serve to drive real estate prices? This concept works with a Domino effect, in that when one home increases in value, it also affects the homes around it driving the price, further upward.
The new home construction market is heavily reliant on building material prices to determine the building cost and the contractor's profitability. If building construction is on the increase quite naturally, the prices of building materials are on the increase; when you have an optimistic and growing economy, you will have increases in building material cost.
The other big drive in the real estate market comes from the development of commercial property. In resort areas, particularly the development of real estate property for commercial purposes tends to quickly affect the surrounding areas real estate prices. Many of today's commercial mortgages have reached loan limits well over $1 million; in fact, some of the residential mortgage loans in certain resort areas are approaching the have the million-dollar mark.
Now, when you combine all of these contribute factors, a mortgage market that is extremely optimistic with its lending capital, you have the makings of a market segment, with the potential for a bubble effect. What happens in a bubble effect economy? The bubble continues to grow until it bursts. This is what many analysts and economists fear: that too many consumers are betting the farm on a continual, optimistic spurt of growth. What could cause our booming economy to rupture? In reality, many conditions can contribute and provide the needed catalyst.
Well, what if there is a continual increase in pricing but there is generally a continual downward spiraling of the ride we’re on? Well, if there should be a tremendous downward turn in the investment market, if there is a continuing loss of jobs in this country, or if there are any natural occurrences that lead to disasters that are beyond governmental or company control, you could see a possibility for disaster. Does that mean it will happen? No. It just means that the potential exists. But in the defense of the housing and real estate market, if you’re going to be risky, that’s the place to be. It’s one of the safest risky businesses that exist.

How to Shop for Low, Interest Only Mortgages

Where do you find low interest, interest only mortgages? Almost every store on the street offers these types of mortgage products, but who is the best, and who is the lowest? That’s going to take some work on your part, and maybe just a little luck.
What kind of information will you need in order to shop for and secure a great interest only mortgage, with a great low interest? Well, you’re definitely going to need a good credit rating, proof of income, an appraisal on the property, and a little bit of luck. There are several products out there in the interest only mortgage segment of the market, and a few are actually going to have a pretty low interest rate tied to them.
For example, the 3/1 ARM, or the 5/1 ARM, these mortgages should have great interest rates, and if you have great credit, you should be able to find financing to suit your budget, your desire for a low interest rate, and an interest only mortgage that you can live with. These types of adjustable rate mortgages offer the interest only feature for a very limited time, and this is what the average consumer should discipline him or herself to use for financing. Extending the interest only option out past these years, could put the consumer in a dire position, should the real estate market take a downward turn, they’re going to be left with a huge mortgage, and property that is no longer worth the original mortgage amount. Now, that’s not likely to happen since the value of the average home in America has seen a steady 5 to 6% growth for the last 10 years. But, it could happen. Take a look at the stock market after the tremendous growth spurt of the late nineties.
Other variables in your quest for a low interest rate will be determined by the type of lending institution you choose, the determination of any government program eligibility, and your geographical location.
Banks are traditionally a little higher with their down payment requirements, but their interest rates are usually lower than those of a mortgage company. The exception: online mortgage lending. Thanks to the fact that this is an area of growth that everyone and every company are promoting, they’re striving to compete with even the lowest interest rate lenders, in order to grow their market.
What kinds of government approved mortgage loan programs are available for the low interest-only mortgage shopper today? There are actually more programs available today than any other time in recorded mortgage history; and the ability to qualify for these programs is at an all-time high. Fannie Mae, or the Federal National Mortgage Association and Freddie Mac set guidelines and product availability for homeowners and residents that quality for low- to moderate income based mortgages. They also offer low-interest only mortgages in order to accommodate an ever broadening market. The graduated payment mortgage is an option for FHA homeowners who currently have low to moderate incomes but expect them to increase substantially over the next few years; this can be compared to a balloon note or the interest only products in use today.
Your location will play a key role in your ability to obtain the lowest interest rate using the interest-only mortgage option, also. Prospective homeowners looking to purchase a home in a high end, resort area will, of course, have more choices available, as there are more buyers and sellers competing, as well as lenders for business. The other geographical contributing factor is the real estate market in your area. If the market is great, prices are not suppressed, and there is moderate movement in the buy and sell market, it increases your chances of obtaining the low interest rate you’re seeking.
The interest only mortgage product and a low interest rate are not mutually exclusive. They can be paired, and under the right circumstances produce a winning mortgage product for the right consumers. The route to achieving this goal will take education on the part of the consumer, hard work, and a little luck in locating the right mortgage lender.