Should You Get an Interest-Only Mortgage Loan?

Should You Get an Interest-Only Mortgage Loan?

There are many types of mortgages to choose from. Which one is best for you? Here is some information you should know before you choose an interest-only mortgage.

There are many types of mortgages out there for homebuyers to choose from. Some of them are better than others and there are some that are just a complete disaster from the beginning. Unfortunately, because some buyers do not educate themselves on the types of mortgages or because they have bad credit, they take a less than desirable mortgage and often get into more trouble than they were already in.

An interest-only mortgage is one of those types of mortgages that may sound like a good idea for buyers with bad credit and little money, but there are some disadvantages to these types of mortgages, too. Interest-only mortgages are typically set for a term of either five or ten years or somewhere in between. The name says it all – you are only making payments on the interest charges of the mortgage loan. Once this term expires, the lender recalculates your payments which includes any interest that has not been paid along with the principal. This almost always results in much higher mortgage payments that many buyers cannot afford. As a result, the buyer is either forced to find a way to make those larger payments, refinance the loan or give in to foreclosure.

If a borrower is disciplined with their money, an interest-only mortgage loan may be ideal for them. If they choose to invest the money they are saving each month while only paying on the interest, they can get that extra money to work for them earning a high interest rate. In a nutshell, these borrowers can borrow more money in the short term and pay less while investing their savings for other reasons, whether it is to grow their business, finish college with a higher degree or simply to let it sit in an interest-bearing account. When the mortgage is recalculated after the interest-only term is up, the borrower may have more money than they would have if they had just made the normal mortgage payments.

Interest-only mortgage loans may also benefit some buyers with tax advantages. The money you pay on the interest of your mortgage loan is usually tax deductible, which means that the borrower may be able to deduct 100 percent of their payments on their taxes during the term of the interest-only loan. It is always best to consult with a qualified financial consultant, however, before doing this on your own.

Before signing up for an interest-only loan, weight the advantages and disadvantages. You may be a financial guru and think about the tax benefits of these types of loans, but is it worth the risk? Are you even disciplined enough to put the extra savings toward something useful or in an interest-bearing account or would you be more likely to spend it each month? Weigh the options and be realistic about your financial discipline before agreeing to an interest-only mortgage loan.

Five Reasons to Refinance Your Mortgage

Five Reasons to Refinance Your Mortgage

Making the decision to refinance is never easy, but here are some of the advantages to refinancing your mortgage loan to help you make your decision.

Refinancing your home often has many advantages. You can take advantage of lower mortgage rates, pay less on your overall loan and put more money back into your pocket each month. Here are five awesome reasons why you should refinance now.

Lower Monthly Payments
Unless you plan on moving to a new home sometime soon, refinancing your mortgage loan can lower your monthly payments. Chances are that you are in a better financial situation now than you were when you bought the house unless you have had financial difficulties recently. If you have been able to pay your bills on time and have not had any major financial catastrophe, you can often get a better rate which leads to lower payments. You will pay some upfront costs for the refinancing, but you will soon recover those costs if you stay in the home for a few more years.

Switching between Mortgages
If you signed up for an adjustable-rate mortgage or some other type of mortgage besides a fixed-rate, refinancing your loan will give you the opportunity to switch. Adjustable-rate mortgages are always uncertain because you never know how much you will pay from month to month because the interest rate is always fluctuating. Other types of mortgages are also less than ideal. If you have anything but a fixed-rate mortgage, consider switching to one once you do your refinance.

Get Rid of Your PMI
Private Mortgage Insurance, or PMI, allows you to purchase a home if you are unable to put at least 20 percent down. This insurance helps ensure the lender will get their money if you default. However, when you refinance, you can get rid of this extra payment as you pay down your mortgage. Check with your lender to see if you are eligible to go without PMI before you stop paying it.

Tapping Into Your Home’s Equity
If you have been paying on your home for several years, chances are that you may have some equity built up in it. When you refinance at lower mortgage rates, you can tap into that equity and use some of it for home improvements, paying down debt or taking that much needed vacation you have been putting off for years. In some cases, the money you receive after refinancing can even be tax deductible!

Get Out of a Balloon Payment
Balloon payments often sound like a good idea at the beginning of a mortgage, but they can be disastrous later on. At the end of the loan term, you will be responsible for paying the entire balance of the loan or risk losing your home. Instead, choose to refinance and get into a fixed-rate mortgage so you can pay the same payment every month until your home is paid off.

Tips for Choosing the Right Mortgage Company

Tips for Choosing the Right Mortgage Company

There are many mortgage companies to choose from. How do you know which one is the right one for you?

Taking advantage of the current mortgage rates and the first-time homebuyer's credit is driving many people to mortgage companies across the country to apply for a home loan. But do you know which mortgage company you should choose when it comes time to purchase your home? There are so many to choose from and the options can be overwhelming if you do not know what to look for. Following are some tips for choosing the right mortgage company for your home buying needs.

Mortgage Company or Bank?
Many home buyers choose a mortgage bank over a mortgage company because they feel more secure as a mortgage bank seems more stable and reliable. These institutions are regulated and monitored by the federal government and they have to follow certain rules regarding mortgages and loans. You should check with your current bank about the mortgage rates it would charge before going somewhere else. When you already have an established financial relationship somewhere, you may be given a lower rate or better terms. The only thing to remember when going to a bank for a mortgage loan is that they often have fewer options when choosing between the types of mortgages that you can choose.

Mortgage Brokers
Mortgage brokers are not as stable but they can be one way to get a mortgage. Brokers are not necessarily licensed, but they do have to follow the same laws that banks and other lenders have to follow. In essence, a mortgage broker is a middleman between the banks or lending institutions and you, the buyer. They can search various mortgages to find the best one with the terms that fit your particular financial situation. Before deciding on a mortgage broker, shop around and talk to several of them. Be sure to ask about any fees or charges they impose for their services and always read the fine print before signing anything.

Did you know you can actually get a mortgage through a homebuilder? It is probably more common than you think. A homebuilder will do much of the work for you when trying to get a mortgage on a home their company has built. Just remember to choose a reputable builder that has been around for many years and will probably continue to be around. Also, be sure to ask about the fees and charges for their services so you are not surprised at the cost when the bill arrives.

If you are the type of person that does not like to share much of your personal information with others, a mortgage broker is probably your best choice. A mortgage bank, however, may be your best option if you have good credit and a stable job. A construction company is ideal if you want a quick mortgage. It all depends on your needs and your financial situation. Just always remember to ask about the fees and read the small print before agreeing to anything.