![]() |
Interest-only Mortgages Have Their PitfallsRising home prices, particularly on the East and West coasts have put the costs of home ownership seemingly beyond the reach of many. And yet, home ownership is up nationwide, and the percentage of Americans who own their homes is the highest it has ever been. How is this possible? There are more different types of mortgages available to home buyers than ever before, and one that is growing in popularity is the interest-only mortgage. With an interest-only mortgage, the buyer pays no principal for the first few years of payments. The period of time varies, and is typically anywhere from one to five years. At that time, the principal is added to the mortgage payments and the amount of the payment increases. By keeping the payments lower for the first few years of the mortgage, the interest-only mortgage allows buyers to obtain a more expensive home than they otherwise might. The buyer's income will probably increase over time, making it possible to afford the higher payments that will come when the principal is finally added to the payments. The downside to an interest-only mortgage is that no equity accrues in the home if the buyer isn't paying any principal. For many Americans, the equity in their home is their single largest financial asset, so taking out a mortgage that doesn't build equity would seem to be a bad idea. Equity has long been used as a last resort source of funding for emergencies. And yet, with the price of homes rising so quickly these days, many buyers don't seem to care. Equity can be built two ways - either through paying down the principal or by an increase in the market value of the home. If the value of your home increases, so does your equity, even if you are only paying interest on the mortgage. This is great, so long as home prices continue to increase. But what if prices fall? There are potential problems with interest-only financing. Interest-only mortgages have variable interest rates. If interest rates rise, mortgage payments will increase. If payments increase beyond the level of affordability, homeowners could be forced to sell their homes. This could lead to a glut in the housing market, causing prices to fall. Owners wishing to sell could find that they owe more money than their home is worth and that they have no equity. The interest-only mortgage is a useful tool to help people buy a home they otherwise might not be able to afford. Prospective home buyers should consider whether taking out such a mortgage is a good idea, or whether they might be better off buying a less expensive home. ©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a Website devoted to debt consolidation information and HomeEquityHelp.net, a site devoted to information on home equity loans.
Here Are Your Options if You Can't Pay Your Mortgage The Motley Fool The Great Pandemic Mortgage Refinance Boom - Liberty Street Economics Liberty Street Economics - UK mortgage borrowers face painful refinancing, warns think-tank Financial Times Today's Mortgage, Refinance Rates: June 8, 2023 | Rates Fluctuate Business Insider Compare Today’s Refinance Rates | U.S. U.S News & World Report Money No-closing-cost refinance: What it is and how it works Yahoo Finance What is mortgage refinancing and how does it work? Yahoo Finance How to get a low-cost mortgage refinance Yahoo Finance This Is the No. 1 Thing to Remember About Higher Mortgage Rates The Motley Fool The Fed’s man-made housing market recession hit so hard that 4 real estate titans just lost their Fortune 500 status Yahoo Finance Total Household Debt Reaches $17.05 trillion in Q1 2023; Mortgage ... Federal Reserve Bank of New York Fixed rate cliff spurs record mortgage refinancing MacroBusiness Will Mortgage Rates Go Up After the June Fed Meeting? The Mortgage Reports How does mortgage refinancing work? CBS News Should I Refinance My Mortgage? - Buy Side from WSJ The Wall Street Journal Here’s how sharply mortgage refinancing has dropped off Yahoo Finance Today’s 30-year mortgage refinance rates hit lowest levels in 15 days | Oct. 28, 2022 - Fox Business CFPB Launches Effort to Spur New Opportunities for Homeowners ... Consumer Financial Protection Bureau Analysis | It Will Pay to Wait to Refinance Your UK Mortgage The Washington Post Why Older People Can’t Get New Mortgages The New York Times Should you refinance your mortgage to pay off debt? New York Post VA refinance rates - current VA loan refinance rates today Business Insider Small Business Loan Refinance Bankrate.com Current 15-year refinance rates today Business Insider Refinance Closing: An Overview Zing! Blog by Quicken Loans What Credit Score Is Needed To Refinance a House | Chase Chase News & Stories Compare Current 30-year Refinance Rates Business Insider 7 Refinancing Programs for Seniors Total Mortgage
|