Posts Tagged ‘lender’

Interest Only Mortgage Loan Information

Interest only mortgage loans usually have an interest only period of 5 to 10 years. During this time period the borrower only has to pay the interest on the loan. After the initial interest only time period the remaining balance is amortized for the remaining term of the loan. For example if the initial loan was a 30 year interest only loan with a 10 year term of interest only payments the remaining balance would be amortized over 20 years.

An interest only loan allows for lower payments at the front part of the loan, freeing up cash for other purposes. Many times borrowers take out this type of loan because they are expecting a raise in the near future and will be able to afford higher payment later.

The pros of interest only home mortgage loans:

• Lower monthly payments during the interest only period
• Free up cash to save for retirement
• Still get the benefit of tax savings

The cons of interest only home mortgage loans:

• Risk of declining value of real estate and being upside down at the end of the interest only period
• Higher payments after the interest only period
• Little or no equity in your home during the initial interest only period
• Higher interest rates because they are riskier loans for the lender

If used properly you can find some advantages in interest only loans; however with the poor money management skills of most Americans it’s not the best idea. If you are planning on using an interest only loan to purchase a home you can’t really afford now, it’s not a good idea. Even though you may expect more income later in life it’s not a guarantee. Research and plan very carefully before taking out an interest only loan.

Reverse Mortgage Loan Information

A reverse mortgage is a mortgage loan or lien against your home that you do not have to pay back for as long as you live there. It’s similar to a home equity loan in the fact that you are taking equity out of your home in the form of cash. You can get the cash out from a reverse mortgage in several different ways:

• a single lump sum of cash paid at closing;
• a regular monthly payment made to you in the form of a cash advance;
• A credit line somewhat like a HELOC;
• Or a combination of any or all of these;

Pros of a Reverse Mortgage

• No Credit Check;
• No income needed;
• Can’t lose your home because you miss payments;
• You never have to repay the loan;

Cons of a Reverse Mortgage

• Create debt against your home and decreased equity in your home;
• Additional fees on top of normal closing costs;
• You have to completely own your home;
• You have to be at least 62 years of age to do this;

When should you consider a reverse mortgage? If you are not facing a financial emergency now, then consider postponing a reverse mortgage. Reverse mortgages are a very expensive way to get cash. Most lenders tack on additional fees on top of normal closing costs. The fees can be as much as 4% of the loan on top of normal closing costs.

Before you decide to opt for a reverse mortgage make sure you understand all the details. Do your homework and make sure you understand exactly what you are doing.