A Guide To Surviving The Housing Market With Interest Only Loans
Many homeowners have suffered the consequences of the subprime mortgage meltdown. The mortgage meltdown followed the greatest housing boom since the 50's, so a lot of homeowners were heavily invested in the housing market. Then it all crashed.
Because of the rising home prices, lenders were constantly looking for ways to give more people the chance to buy a house. Almost any employed person could get a loan to amazing multiples of their income. One of the things lenders invented to give everyone a shot at home ownership was the interest only loan.
If you're confused about the difference between interest and principle, this is something you should know before thinking about a new mortgage. The interest is the fee you have to pay the lender because you've loaned money. The principle is the actual amount of money you've loaned.
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.
An IO loan can still be a good possibility now that home prices are leveling off or even going down. But you must be sure you can pay the monthly interest payments. If not, you have a much bigger debt to handle when things go wrong. It does give you some financial breathing room by lowering your monthly payments, and many people are looking for exactly that right now.
Because of the rising home prices, lenders were constantly looking for ways to give more people the chance to buy a house. Almost any employed person could get a loan to amazing multiples of their income. One of the things lenders invented to give everyone a shot at home ownership was the interest only loan.
If you're confused about the difference between interest and principle, this is something you should know before thinking about a new mortgage. The interest is the fee you have to pay the lender because you've loaned money. The principle is the actual amount of money you've loaned.
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.
An IO loan can still be a good possibility now that home prices are leveling off or even going down. But you must be sure you can pay the monthly interest payments. If not, you have a much bigger debt to handle when things go wrong. It does give you some financial breathing room by lowering your monthly payments, and many people are looking for exactly that right now.
About the Author:
Jill is a financial advisor writing about loans and mortgages. She also writes in Dutch about lenen and snel geld lenen.
posted by Credit Counseling at
2:10 AM
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