The interest only mortgage is a mortgage option to only pay for the interest for specific mortgage terms. Thereby, the borrowers pay less per mortgage payment. So, they can afford a home or a more expensive home. While interest only mortgage sounds like a great way to purchase a home, there are risks involve on interest only mortgage.
No home equity
The borrower pays only the interest on the mortgage. In most cases, there are no repayments on the principal for first few years. Without home equity, the borrower can not build wealth. The borrower depends on the appreciation of the home to build wealth.
Higher interest rate
Mortgage lenders know the risks on interest only mortgage. And, there is high rate of mortgage default on mortgage payment. To cover up the potential losses, mortgage lenders charge higher interest rate.
Adjustable Rate Mortgage with Interest Only Mortgage
The Adjust Rate Mortgage is a type of mortgage in which the interest rate varies. Mortgage lenders charge the borrower with the current interest rate. Let us say the interest rate fluctuates two percent. The borrowers pay two percent more on monthly mortgage payment. The worst case scenario is the interest rate goes up. And, the borrower could not afford to pay the monthly mortgage payment.
Buy more can handle
The affordability of the mortgage deceives the unsuspecting borrowers. Since the borrowers pay less, the borrowers look to buy another home, or more expensive home. The reality bites, when the interest rates rises, home market value declines, or time to repay comes.
Nothing lasts forever
Mortgage lenders expect the borrower to repay after interest only mortgage term. For example, the borrower locks the mortgage in interest only mortgage on five year mortgage term. At the end of five year mortgage term, the borrower pays the mortgage with regular or conventional way to pay the mortgage.
Home market value declines
The real estate appraisal tells the fair market value of the home. Investors are always on the look out to sell for profit. The investors buy a home with interest only mortgage. Meanwhile, the investors wait for the fair market value to rise. If the fair market value fails to rise up, the investor poses a potential loss.
And to summarize
The interest only mortgage was popular in the 1920s, until the depression came. Interest only mortgage slowly disappear. However, interest only mortgage is making a comeback. Only this time, the mortgage is interest only for up to 10 years. Mortgage lenders usually use 5, or 10 year mortgage term for interest only mortgage. Interest only mortgages are perfect, when home market value is on the rise, income is on the way up, and interest rate is low. The knowledge of the risks also reduce the risks on interest only mortgage. When the borrowers are beginning to see the risks, they know that it is time to boot out.
The credit card debt consolidation is a program that sums up all the credit card loans into one single loan. Thereby, the consumer pays one single monthly payment. The monthly payment and interest rates of the one single loan are lower than any of the credit card rate.
Nowadays, it is easier to get a credit card. The credit lenders mail the credit card application. Within days, the consumers get a credit card. It is so easy that we may have one to many credit cards. The credit card provides so much convenience. The consumers can purchase an item thru credit card loan right on most stores. The loans add up into one huge loan.
The credit lenders charges high interest rates on any outstanding loans. If you can not pay most of the outstanding loans, the amount owe grows really fast. Sometimes, the loans get out of hand. And, it is really hard to get back on good foot.
Once the consumers are unable to manage the outstanding loan, the credit card lenders send the outstanding loans to the collection agencies. The collection agencies call the consumers to repay the debt. It is their job to collect repayment from the consumers. Consequently, the consumers are bombarded with many calls from collection agencies.
During the debt crisis, the consumers can develop a realistic budget, seek credit counseling, apply for debt consolidation, or file for bankruptcy. To get back on track, the consumers must set a realistic budget. The budget tells how much the consumers can really use to repay the loan. The consumer lists all the income and expenses. Hence, the consumers will know the realistic budget.
The credit counselors guide the consumers to get out of debt. With credit counseling, the consumers repair bad credit rating, get peace of mind, and repay the loans.
Bankruptcy is way to declare to credit lenders that the consumer is unable to repay the loans. Now, the consumer is required to go credit counseling before the consumer can file for bankruptcy. By the way, bankruptcy tarnishes credit rating. And, the consumer may not be able to get loan, mortgage, or financing for seven years.
The consumers need a little hand in times of credit card debt crisis. With credit card debt consolidation, the consumers pay less on repayment, stop the debt collectors, and avoid the bankruptcy.
The remortgage for debt consolidation sums up all the unsecured loans or bad debts into one single manageable payment. The unsecured loans or bad debts may include credit cards, utility bills, car loans, home mortgage, expensive loans, store cards, and more.
The loans become unsecured loans or bad debts when the loans become unmanageable. We all have a limit. We earn differently from others. So, each individual have a unique credit limit. Sadly, we are never satisfied. It is human nature. Sometimes, our satisfaction gets in the way on our financial matters.
The remortgage for debt consolidation are very common. Sometimes, the debts get a little out of hand. Because the borrowers pay lower monthly payment, and interest rate, the borrowers likes to take this avenue to solve the unsecured loans and bad debts crisis. Debt management counselors, who give debt management support, usually guide the client to use debt consolidation to get out of debt or manage the debt.
Also, the debt consolidation is good way to stop the annoying, nagging, and harassing calls from collection agency. The loans and mortgage lenders like to get their part of the bargain or deal. They like to get paid.
Also, the debt consolidation is good way to stop the annoying, nagging, and harassing calls from collection agency. The default on payments and late payments risk the property, and leads to foreclosure. The loans and mortgage lenders like to get their part of the bargain or deal. They like to get paid.
Today, the borrowers can compare interest rates, loan products, and mortgage options online. Many lenders offer legal service or specialist at no extra costs to the borrower.
Debt consolidation is still a huge obligation. It requires patience, and discipline to repair bad credit rating. And, it takes time to be back on a normal lifestyle. Loans and debts must be manageable to keep a healthy lifestyle. With debt consolidation, the borrowers release equity, spare cash, repair bad credit rating, gives peace of mind, and makes life easier.
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