Open yourself up to available mortgage choices and willingness to do some bargain. Before you submit a loan application be aware of your credit standing by checking your latest credit score with any of the credit rating agencies - Equifax, TransUnion or Experian.
by Lin Ennis
A reader has written in to ask whether the program described
in "Let Your Mortgage Make You Rich!" will work even if they have an
interest-only loan.
First, a brief description. That
particular program claims to help you pay off your mortgage quickly so you can
use your former house payment for other investments. So, will it work even on
an interest-only mortgage?
Before answering that, we have to ask, does the home-buyer
plan to ever pay off their house? Or do they have a program, much like renting,
in which they pay interest only for ever and ever? Not likely. (Although, that was the case prior to the Great Depression.)
Interest-only loans are such for a limited period of time,
for example 5-10 years. When that time ends, the payment switches to a normal
principal and interest payment with the whole amount of the original loan still
to be paid off as though nothing had been accomplished.
Since the average time people seem to hold their homes in
the U.S. today is about seven years, IF, and this is a BIG if, you are in a
growth area, and in a growth period of the normal up and down oscillation of
the real estate market, it is possible the interest-only home could be sold at
a profit, or at least refinanced.
But if the buyer plans to stay in the home and intends to
pay it off someday, and if the lender doesn't PROHIBIT paying down principal at
will, the program we're analyzing, "Let Your Mortgage Make You Rich!, might work very well. In fact, the interest-only borrower
might need it more than most and the sooner the better!
Most people who got into interest-only did so because they
couldn't afford to also be paying principal--or at least they didn't want to be
locked into HAVING to pay principal. This program suggests a way to pay down
principal even if you don't have extra money for payments.
The program offers a money-back guarantee, so the seller
assumes all of the risk. That could certainly be a reason to invest in one
pay-down technique over another, that is, what if it doesn't work?
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Life Insurance - A Weighty Issue |
People claim to have avoided tens of thousands, even
hundreds of thousands of dollars in interest. But our investigation does not
indicate any of these were interest-only borrowers.
We would recommend interest-only for people who are extremely well-disciplined financially. They are the ones who are looking over all their assets and liabilities and deciding where to take a risk and where to avoid one. And if they are able to infuse a large amount of cash or equity into the principal of their loan, they might be able to p[ay it off as fast as someone who is under the monthly obligation of paying both principal and interest.
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However, it seems to be the lesser-disciplined people who
often choose interest-only for a home. They are buying into more home than they can afford, or sooner than they can afford
it, in the hopes that their financial situation will improve enormously in a
few years and they'll be fine.
If that doesn't happen, they may be worse off than had they
been renting. At least with a rental, so long as they continue the monthly
installments they would not likely be evicted. However, a jump in a mortgage
payment could cause a foreclosure of the buyers are unprepared.
About the Author
Lin Ennis is a freelance writer working from Sedona
If you decide that refinancing is your best option it is important to make sure you find the right person to help you out. It is surprising how many homeowners just turn on their computers and start searching the Internet in search of a new loan. You will want to work with a local broker or bank that understands your area and you can deal with on a local basis.