Short-Term Homeowners and Interest Only Loans
Let's assume that you're one of the new age consumers, who fit
into the fastest growing segment of the mortgage market today,
the interest only mortgage. It is time to you to secure a
mortgage, and there are several loan options that can be tied to
the features you desire; you're particularly interested in the
interest only feature that seems so appealing to many consumers
today. But have you stopped to question why the interest only
feature has become so popular with consumers today? Are you
aware that it is a re-born feature laid to rest in the great
depression of the 20s?
Have you stopped to examine the purpose of the interest only
loan and what purpose it will serve in your particular
situation? The original intent of the interest only mortgage was
to make home ownership more appealing to young couple; not every
prospective buyer, however, is a young person looking to buy
home. Careful evaluation of your situation and the interest only
mortgage must be performed in order to secure the best mortgage
possible.
Let's take a look at the original intent of the interest only
mortgage, and the greatest benefactor in the interest only
mortgage segment: the short term homeowner. The idea behind the
interest only mortgage product was to give the short-term
homeowner a race in the buy home, with or down payment
requirements associated with the standard mortgage. This idea
worked so well, that now almost every kind of homeowner is
exercising their interest only mortgage option. As it was only
ever really intended to benefit the short term homeowner, the
interest only mortgage product is currently used as a means to
buy "more home for less money".
The appeal to the short term homeowner segment of the market was
a way to grow the housing industry, since this particular type
of buyer, normally only rented. In most short-term home
ownership, situations, the buyers are young professionals in the
beginning years of their career, who have tremendous potential,
and almost always a guarantee of purchase from their company
should their home remain unsold after one year on the open
market. As you can see, the consumer who was initially targeted
for this type of loan would truly see a benefit from the
interest only mortgage product. Today, however, the consumer
actually applying for the interest only mortgage product is a
consumer who seems to be spending beyond their income means.
What we have discovered, with today's consumer there is an
overwhelming tendency to purchase more home than can possibly be
afforded; the reasoning behind such a purchase? Since the term
of the interest only segment of the loan will normally run three
to five years, many homeowners are borrowing based on
"anticipated earnings". Quite often, the anticipated earnings
never materialize, and at the end of a five year interest only
term, the homeowner is left with a much higher mortgage payment
minus the increased earnings.
As with many other modern-day products packaged and sold to the
consumer, it sometimes is not always the wisest choice, the best
buy, or the greatest benefit to simply follow suit; sometimes,
educating yourself as a consumer is a much better, and a much
more affordable choice.
The long-term, homeowner purchasing to procure a safe haven from
which he or she can retire and be assured of a decent home, is
not a benefactor, nor suggested candidate for the interest only
mortgage product; however, in the attempt to grow this product
into a larger share of the mortgage market, many interest only
loans have been advertised as ways to pay off credit card debt,
avoid a down payment, and create greater tax savings at the end
of the year. None of these reasons, within itself would be a
"good" reason to purchase an interest only mortgage product.
Many of the local lending institutions, especially the banking
industry, have shied away from the open arms welcome that the
interest only product received in the mortgage company circle,
simply because the loans are a riskier prospect, and many times
consumers aren't as educated about the choices they are making.
When you misuse a product, you begin to run into problems, and
create a potentially dangerous market situation.