How To Survive This Housing Market With Interest Only Loans
The consequences of the recent subprime mortgage meltdown were severe. Because of the housing boom occurring from 2001 to 2005, a lot of people were investing in the market. Then it all ended with a bang.
During the boom, lenders made every effort to make it easy to get a mortgage. The criteria for getting a mortgage were way too loose, allowing virtually anyone to get a mortgage and buy a home. One of the tools lenders used to give everyone the chance to own their own home was the interest only loan.
If you're thinking about a home mortgage, the first thing you should know is that there is a difference between interest and principle. The principle is the total amount of your loan. The interest is the fee you pay the lender over the duration of your mortgage.
The interest only loan is not a mortgage itself. It is an option you can attach to any type of mortgage. With an IO loan, you only pay the interest. Therefore, you do not pay off any principle. This allows you to lower your monthly costs. It is an excellent option when housing prices are going up.
The fact that housing prices are leveling and even going down does not necessarily mean that an IO loan is not a good idea. It just means that you have to know for sure you can always afford the monthly interest payment. If you can, the Interest Only loan can give you some financial breathing room, which can come in handy these days.
During the boom, lenders made every effort to make it easy to get a mortgage. The criteria for getting a mortgage were way too loose, allowing virtually anyone to get a mortgage and buy a home. One of the tools lenders used to give everyone the chance to own their own home was the interest only loan.
If you're thinking about a home mortgage, the first thing you should know is that there is a difference between interest and principle. The principle is the total amount of your loan. The interest is the fee you pay the lender over the duration of your mortgage.
The interest only loan is not a mortgage itself. It is an option you can attach to any type of mortgage. With an IO loan, you only pay the interest. Therefore, you do not pay off any principle. This allows you to lower your monthly costs. It is an excellent option when housing prices are going up.
The fact that housing prices are leveling and even going down does not necessarily mean that an IO loan is not a good idea. It just means that you have to know for sure you can always afford the monthly interest payment. If you can, the Interest Only loan can give you some financial breathing room, which can come in handy these days.
About the Author:
Jill is a financial advisor writing about loans and mortgages. She also writes in Dutch about lening and geld lenen snel.
posted by Credit Counseling at
4:01 AM
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