Monday, September 25, 2006

Interest Only and Credit Card Debt

Well, here is an instance of the system that isn’t functioning as intended: a mortgage loan that encourages paying off one debt, in order to overspend ourselves with an additional debt. The interest only mortgage and the credit card debt. As a borrowing country, I believe we’ve reached new levels.

It would appear that in this century we’ve managed to take every form of credit possible, extend it to the limit, and then look at them as if to say, “You mean you can’t pay?” What do these loan and credit companies think they’re going to be facing, when the total of credit and mortgage they’re willing to extend, reaches past the acceptable debt to income ratio? Why do they think these limits were established in the first place?

More clients than ever before owe massive credit card debt. It’s the way to go, many college campus’ are overrun with representatives from the major credit card companies, willing to extend credit to the young hands of the college student. Are they as ready to work with them when they can’t pay? No. What about the rest of the crazed, spending people? How do they handle their credit cards? Well, thanks to the interest only mortgage, we can currently pay off credit card debt we can’t afford, with a mortgage we can’t afford. Now, that’s progressive thinking.

The interest only mortgage is now an instrument for replacing non-deductible over extended debt, with tax deductible over extended debt, and consumers still to be the ones to pay. This is not a wise option, if you’re already spending more than your budget will allow, how about cutting back? Did that ever occur to the mortgage company? No, because they don’t make any profit if you learn to spend less.

As a fellow consumer, each of us should take the time to question our spending behaviors. Is it sensible or necessary? If the answer to either question is no, then don’t spend. You don’t want to have to make the choice between over the limit spending, and a nice, warm bed, do you?

Okay, now here’s an appealing spin on an already risky product, let’s give the bad credit crowd an opportunity to make an even worse decision, and finance a home they can’t really afford and clearly will have trouble making on time or dependable payments so they can payoff credit card debt, only to charge it up once more!

From time to time, the products and situations that you see in the everyday world of researching these loans, is truly astonishing and this is one of those situations. There are actually mortgage companies that promote these interest only mortgage options for the consumer with the bad credit record to pay off any outstanding credit card debt!

Now, what I’d like to understand is why the mortgage company, in all good faith, would want to take a risk such as this. It’s risky financing for consumers with bad credit, when you’re financing with good rock-solid collateral, well within their means to pay. You take the consumer and the mortgage loan outside those realms of operation, and you’re just merely asking for a problem.

Maybe we should have an organization that’s known as the “mortgage police” and when there’s a clear and evident infringement of just good sound common sense, a whistle blows, the computer locks up, and in walks the mortgage police. I truly believe the buyer, if not the mortgage company would be a lot better off; especially when the consumer has time to really absorb the basic facts about interest only mortgage, and the mess they can make of their finances;

With all the government control that controls the mortgage loan industry, and all the statistics that are published about the consumer with a bad credit rating, who do you suppose thought it would be a good idea to give them an interest only mortgage, that they more than likely will have additional trouble paying? You wonder if Alan Greenspan is aware of this situation, and if he takes it into consideration when raising the prime interest rate? Do you assume there’s a number factor for the “really going to default on these loans” segment of his equation that determines our prime lending rate?

Let’s hope Alan uses more foresight and plain good business sense than our mortgage loan brokers, particularly the ones that came up with this genius idea!

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Disclaimer:
The general information provided by http://MortgagePalace.blogspot.com is intended as an educational purpose only, and should not be interpreted as legal advice. The law varies drastically by location and legal specialty, and http://MortgagePalace.blogspot.com makes no promises about the accuracy or completeness of the information provided. You should not rely on our information when making legal decisions. We recommend that you consult with a lawyer to get professional legal advice on how best to deal with your situation.
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Monday, September 18, 2006

Interest Only Mortgages for Wealthy Investor

It is for these kinds of investors that the interest only mortgage options should be used. The borrowers are business people, with business plans, and sufficient knowledge about the workings of commercial and mortgage loans, to understand a good investment from a bad. The commercial mortgage industry is an enormous market, and since most of the monies borrowed exceed the $100,000.00 amount, the international bank rates, or LIBOR, are used for determining the commercial mortgage rates.

Wealthy investor typically means successful investor. These investors are very knowledgeable in the investment process, be it real estate or stocks, they understand the risks they’re taking, and how to minimize the risk for the profit. The real estate investor and the interest only mortgage are a perfect combination. The real estate investor looking to keep an investment for short term can really benefit from the lowered capital investment of the principal payment. Particularly in a situation where the investor is improving the property and the value is sure to increase.

Many of the consumers, who are being presented these interest only loans, are not business people; they’re not wealthy investors searching for a way to invest excess capital. They’re simply consumers searching for a place to live.

The investor usually has an investment analyst at his or her disposal, with tools and resources that can decide a good investment, the risk involved, and measure it against the amount of risk the investor is willing to receive. All these factors go into determining if an investment is a buy or sell. This particular borrower fully comprehends the risks involved in an interest only mortgage, and has spent the time needed to determine if the product is correct for his investment needs. The real estate investor is a business person, not a consumer borrowing to pay for a place to live

When you contrast this with the consumer buy or sell, you’re not even comparing apples to apples.

Some investment opportunities for the wealth-building investor will at some end require an extra amount of monies to turn the investment into a profitable situation; do you suppose the average consumer has another ten or fifteen thousand dollars at their disposal, in case the interest only option should become a problem, or they’re home should need unforeseen repairs, in order to remain at the purchase value? Most likely, the reply here would be no.

The short-term real estate investor or developer wants to keep his or her expenditures at the smallest amount during this investment period, saving as much of the expendable cash as possible for the real renovation or preparation for sale of the property itself.

The less money used up on mortgage payments, or in the investor’s eyes, investment cost, the more money there is to actively and aggressively pursue potential buyers and raise the value of the property. This is good business, and good business is based on sound business choices.

It is here that every buyer needs to stop and reconsider their borrowing situation against that of the investor. The wealth-building investor is a business person. Their livelihood depends on their knowledge of the product they market, in this case real estate. Usually, a business person is not going to take a risk with their personal investments; unlike the risks they will take with a business investment. Why? Because the home they share with their family is much more significant than a business deal, most are not willing to risk losing their home.

I still am not an advocate of the interest only mortgages, but for some conditions they are the best option. In a business setting, when many factors have been carefully discussed, and the interest only option has proven itself to be the best choice, I believe the interest only mortgage should be used. But this option should stay as the knowledge of LIBOR is among the masses, virtually unknown.

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Disclaimer:
The general information provided by http://MortgagePalace.blogspot.com is intended as an educational purpose only, and should not be interpreted as legal advice. The law varies drastically by location and legal specialty, and http://MortgagePalace.blogspot.com makes no promises about the accuracy or completeness of the information provided. You should not rely on our information when making legal decisions. We recommend that you consult with a lawyer to get professional legal advice on how best to deal with your situation.
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Monday, September 11, 2006

Financial Planning and Interest Only Mortgages

As you get older you do become more careful in your investments, with your time and your money. Interest only mortgages are one of those options, that if you’re investing in real estate for the short term, and you’ve consulted with a reputable financial advisor, you might want to consider. Investment portfolios do not normally include real estate, so more than likely this is a business venture or an investment business. In either circumstance, financial planning is a must. This is one of those options, that should however, be considered only after careful planning and thought. The trade off, may be or may not be to your advantage.

Long-term investments, those with capital gains, and purposes other than a quick profit, I don’t think are candidates for the interest only mortgage. The interest only mortgage doesn’t present much in the way of building and increasing investment value, because you simply never increase the value of the asset to you. You increase the value of the loan for the lending institution, because you are continually providing a profitable situation for the lender. Your principal investment responsibility never decreases.

What about the short-term implications and your financial preparation? Well, this leaves many doors unopened and many avenues unexplored. However, given the fact that you’re considering the end result of the interest only mortgage product on your financial planning expectations, there aren’t very many “short-term” considerations open for discussion. The only short-term benefit to interest only is that your monthly payment is frequently very low during the term of the interest only payment.

When you analyze the impact your 401(k), an MSA, an IRA, or any other tax deferred savings or retirement program can have on your bottom line, the interest only mortgage doesn’t really have that much to offer in the reality of tax savings, or tax deferment; yes, it’s true that your mortgage interest is tax deductible, but not on a one-to-one ratio. Tax deferred retirement accounts, even SEPs, for the self-employed person have a one-to-one ratio of tax savings.

Another long-term financial planning consideration: when you would usually have paid out a regularly amortized loan, you will still be paying on the interest only mortgage. What could the potential savings be, for you, if you weren’t still paying on a mortgage? The time value of money is an idea that few consumers ever learn to appreciate. It means the dollar you have today, will be worth less tomorrow than it is today, therefore saving today yields a much better advantage than waiting until you’re 35 or 40 to begin saving and planning for retirement.

Mostly, your home is your greatest asset, and is the only savings that many consumers have managed to accrue. If the only payments you have made were for the interest due on the principal, you in fact have no accumulated savings. Now, that might not be an issue for people in their 20s or early 30s; however, by the time you reach your 40s, you have begun to contemplate retirement, and ways to save for that stage of your life.

As stated earlier, caution and good sound financial planning may determine that an interest only mortgage will benefit you greatly. But, this option should only be considered only after you had taken time for careful consideration and good financial planning.

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Disclaimer:
The general information provided by http://MortgagePalace.blogspot.com is intended as an educational purpose only, and should not be interpreted as legal advice. The law varies drastically by location and legal specialty, and http://MortgagePalace.blogspot.com makes no promises about the accuracy or completeness of the information provided. You should not rely on our information when making legal decisions. We recommend that you consult with a lawyer to get professional legal advice on how best to deal with your situation.
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Monday, September 04, 2006

Interest Only Mortgages and Young Professional

Here is one of the winning candidates for the interest only mortgage. The young professional that is excited to get out into the home ownership market. He or she is equipped with several level of mortgage product comprehension, and a guarantee of growing income.

Today’s mortgage market has seen a tremendous increase in mortgage packages, variety and borrowing levels. The interest only mortgage option, once thought to have gone the way of the Edsel automobile, is back at the moment and in use by the masses; in fact the mortgage market has seen an increase in the interest only mortgages from just a simple sliver of the market a few years ago, to around 23% of the market share currently. That’s huge growth, especially in the mortgage industry in less than 5 years.

Who will benefit most from this kind of mortgage loan product? What type of consumer is it that would desire an interest only mortgage? Well, you will get several answers, but only one or two will be correct. The really smart and savvy borrower, with clearly recognized goals and objectives that include the interest only option, the young couple that are moving up the corporate ladder and won’t be in the area over three years, and then there’s the most often sited consumer: This consumer is buying a home with a somewhat limited budget and wants as much home as they can possibly buy. They normally fit into the category of the couple with children, who need room and who plan to be homeowners at that location for a while. The other particularly winning candidate for these types of loans are the young real estate investors, who are profit creators, and won’t keep the property long enough to justify making a large capital investment.

As you observe the young professional, his or her situation is conducive to minimal investment requirement. He or she won’t be in this job position or this home over 5 years, and the most likely, the company is willing to include a buy back clause in the employment contract; how can you lose? All the right parts are in place for this to be a great marriage of needs and wants being satisfied with one parcel. In cases such as this, the interest only mortgage option is a great route to take.

What about the young couple with the growing family? Are they the correct candidates for such a purchase? Mostly, the answer would be yes. They’re budgets are limited, for the present, and their family is outgrowing the present home. Especially if one of the spouses holds a professional degree, they should have no problem growing into a larger mortgage payment within a few years. The interest only option gives individuals 3 to 5 years to get an income increase, then the principal and interest payment level kicks in, but their income will then support a higher payment.

The real estate investors, commercial developers, land brokers, and any other investor that works within this realm of business, is a potentially winning candidate for the interest only option. This person, or business group, doesn’t intend to keep the property long enough for there to be a need for capital investment. They need the capital free to create the changes, required planned construction, or to advertise the property for sale.

These are the potentially successfully and advantageous relationships that exist with the interest only option. Are these the only individuals who secure interest only mortgages? Definitely not. In spite of of the pros or cons to the interest only mortgage, and regardless of the original intent, many of the consumers securing these interest only mortgages are doing so in order to lower monthly payments, to buy more house for less money, and even to divert income to tax-deferred savings. Some will be victorious some will simply wind up paying on their home for most of their life.

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Disclaimer:
The general information provided by http://MortgagePalace.blogspot.com is intended as an educational purpose only, and should not be interpreted as legal advice. The law varies drastically by location and legal specialty, and http://MortgagePalace.blogspot.com makes no promises about the accuracy or completeness of the information provided. You should not rely on our information when making legal decisions. We recommend that you consult with a lawyer to get professional legal advice on how best to deal with your situation.
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** Attn Ezine editors / Site owners **
Feel free to reprint this article in its entirety in your ezine, blog, autoresponder, or on your site so long as you put a link back to this original post, leave all links in place, and do not modify the content in anyway.
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