Interest Only Mortgages for the Wealthy Investor
It is for these types of investors that the interest only
mortgage options should be used. The borrowers are business
people, with business plans, and enough knowledge about the
workings of commercial and mortgage loans, to understand a good
investment from a bad. The commercial mortgage industry is a
huge 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 usually means successful investor. These
investors are very educated in the investment process, be it
real estate or stocks, they understand the risks they're taking,
and how to maximize the risk for the profit. The real estate
investor and the interest only mortgage are a perfect pairing.
The real estate investor looking to retain an investment for
short term can really benefit from the lowered capital
investment of the principal payment. Especially in a situation
where the investor is improving the property and the value is
certain to increase.
Many of the consumers, who are being offered these interest only
loans, are not business people; they're not wealthy investors
looking for a way to invest excess capital. They're simply
consumers looking for a place to live.
The investor normally has an investment analyst at his or her
disposal, with tools and resources that can determine a good
investment, the risk involved, and measure it against the amount
of risk the investor is willing to take. All these factors go
into determining if an investment is a buy or sell. This
particular borrower fully understands the risks involved in an
interest only mortgage, and has spent the time needed to
determine if the product is right 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 compare 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 point require an additional 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 unexpected
repairs, in order to remain at the purchase value? Most likely,
the answer here would be no.
The short-term real estate investor or developer wants to keep
his or her expenditures at a minimum during this investment
period, saving as much of the expendable cash as possible for
the actual renovation or preparation for sale of the property
itself.
The less money spent on mortgage payments, or in the investor's
eyes, investment expense, the more money there is to actively
and aggressively pursue potential buyers and increase the value
of the property. This is good business, and good business is
based on sound business decisions.
It is here that every consumer needs to stop and reevaluate
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. Normally, a business person is not going to
take a risk with their personal investments; not like the risks
they will take with a business investment. Why? Because the home
they share with their family is much more important 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 situations they are the best option. In a business
setting, when many factors have been thoroughly discussed, and
the interest only option has proven itself to be the best
choice, I think the interest only mortgage should be used. But
this option should remain as the knowledge of LIBOR is among the
masses, virtually unknown.