Cash Flow Control With Interest Only
Payment Mortgages
by: John R. Blakefield
Another option for a mortgage? You shouldn't be so
surprised. Interest only payment mortgages can get you into a home.
There are so many options for people to buy a home today.
The financing continues to get even more creative as lenders continue to help as
many people as possible get into a new home. This can be great from a quick
glance, but you must be careful not to get into a situation that the mortgage is
too creative for you to pay every month. Many people go into a deal thinking
they are doing the right thing for their situation, but only falter on payments
because it is just too much money and the equity is being stripped from the
home!
Regarding the normal financing, you have the options of
adjustable rate mortgages, which have an interest rate that changes the monthly
payment every few years depending on the terms of the mortgage, and fixed rate
mortgages that have a steady interest rate throughout the entire length of the
life of the loan, and of course the more risky balloon mortgage which allows you
to pay a low monthly payment, if one at all, and then pay off the debt at the
end of the life of the loan in one large lump sum.
The creativity comes in by adjoining two types of
mortgages. For example, you may have a split mortgage where for the first 5
years of a loan you have a straight fixed rate mortgage, but then after those 5
years, you move into a fluctuating, less stable adjustable rate mortgage.
Lenders will mix and match, combine and separate to negotiate all terms
regarding a mortgage.
The only way to be certain that a certain mortgage is
right for you is to calculate the monthly payments and total expenses, including
all fees and the possibility of a prepayment penalty. And watch out for those
prepayment penalties! They can only charge them if you agree to them, so be sure
to read all fine print carefully to see how much a prepayment penalty really is.
If you catch it and it was not discussed, be sure to have a talk with your
lender to get the terms corrected.
Interest only payments allow you to pay only the interest
on your mortgage for the first few months, usually keeping the monthly payment
very low. This can allow you to control your cash flow in the beginning, so that
buying a home isn't such a huge shock to your finances.
(You should, however, be prepared to buy a home before you
do it so hopefully it won't be a huge shock to your finances.)
This additional cash flow can be used for other things
such as paying off consumer debt or addressing unforeseen expenses such as
medical bills or a pay cut.
During the interest only payments, which are lower than
what would be your normal monthly payment, you are not paying anything towards
the principal- the entire loan amount previously agreed to by you and the
lender. However, you can make a principal payment in which your next interest
only payment would be based on a lower principal amount.
Now, the interest rate can still be adjustable or fixed
depending on the terms. I am sure you will find lenders that will be creative
with this as well.
Interest only payment mortgages are not good for those who
wish to build the equity quickly in their home. This is for people who need to
control their cash flow or have other reasons as to why they should not pay any
principal payments. However, it is still an option and maybe it is just what you
are looking for. Always be clear on the terms before you agree to any financing.
About The Author
John R Blakefield is a mortgage and real estate
specialist. For more information, articles, news, tools and valuable resources
on home mortgages or investment loans, refinancing, debt solutions, visit this
site: http://www.scourtheweb.com/mortgage/.
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