| Mortgage 101 - Interest Only Loans Whats So Interesting About Them? |
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Okay okay, I admit the title is a little cheesy, but I just couldnt resist! The fact is that interest only loans have become more popular lately as many banks now feature interest only products. What are the facts about interest only loans and why would anyone want an interest only loan? The most obvious feature is that you are not paying any of the principle of your loan, only the interest. This means you would still owe exactly the same amount after your term as when you started. Sound crazy? Maybe so, but it does allow for some luxuries and some tax considerations. One certain result is a much, much lower monthly payment. But this can also have its downside. Many people are worried that if interest rates rise, those who bought with interest only or adjustable rate loans will lose their homes. Certainly, there are some people who are playing the very dangerous game of buying more house than they can afford. However, the entire mentality of the market may actually be changing to adapt to changing interest rates. Many people are buying homes with adjustable or interest only loans knowing full well that in five years they will either move or that their house may have less equity. People are starting to treat their homes like car leases, caring only about the monthly cost to have the best they can afford. The difference? Cars dont typically go up in value year after year like real estate. On the other hand, if you are buying investment properties with negative cash flow and expect the values to increase over two to three years, watch out! What if the values decrease? What's your backup plan? Can you rent it for break-even cash flow? Can you sustain negative cash flow until the market rebounds? If so, then don't sweat it. You'll also pick up a whole bunch more properties at the bottom of the real estate cycle. If not, then you are a speculator, not an investor, and you are at the whim of factors beyond your control. Such activity is very risky, to say the least, and it is disturbing to see that many investors are doing just that in some of the hottest markets. Worst of all, they are doing so with interest-only loans, with no "Plan B." If you think you can get a revenue property and write off the interest, then an interest only loan may not be a bad idea. This is, however, a consideration best left for the accountants of the world. If this is your strategy, best to fully research the tax laws and know exactly what you are getting into. The bottom line is, the real estate market may go up, and then again, it may go down. So you really need to know why you are a home owner in the first place. If you are raising your family and you want to pay off a home and be mortgage free someday, interest only loans are not for you. If you have an altogether different reason or strategy for wanting an interest only loan, they are certainly available in todays market. To learn more go to www.unisourcemortgage.ca and utilize the on-line help or send us an e-mail with your specific questions. Gordon Ross, B.Sc., AMP Unisource Mortgage Canada About AuthorGordon Ross is the broker/owner of the Unisource Mortgage Canada Corporation and is a respected expert in Canadian mortgage finance and real estate investment. An accomplished author and lecturer, Gordon has always focused on a people first philosophy striving to provide sound financial advise through information and education based solutions.Gordon holds degrees in Business and Science from Arizona State University and holds his AMP designation with the Canadian Institute of mortgage brokers and lenders. He is also an active director of the National Alliance of Independent Mortgage Brokers. For more information please go to www.unisourcemortgage.ca Source: ArticleTrader.com Read more at: http://www.articletrader.com/finance/mortgage/mortgage-101-interest-only-loans-whats-so-interesting-about-them.html. |
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