Can Your Mortgage Be Your Savings Account

Can Your Mortgage Be Your Savings Account

Can your Mortgage be your Savings Account?
It is​ becoming increasingly popular to​ use a​ mortgage in​ lieu of​ a​ low-interest savings account .​
is​ this a​ good idea?
The latest version is​ a​ home-equity line of​ credit that is​ used to​ buy a​ home .​
It is​ marketed as​ a​ way to​ pay down your mortgage faster than the​ traditional mortgage .​
But it​ only works at​ this if​ you​ use it​ correctly .​
It could be both good and bad that you​ can use the​ funds from the​ account whenever you​ want to​ .​
All you​ have to​ do is​ write a​ check.
It is​ basically an​ adjustable-rate home-equity credit line that is​ based on​ the​ value of​ the​ property .​
You make interest-only payments for the​ first 10 years .​
The balance is​ then fully amortized over the​ next 20 years .​
You will pay both the​ interest and the​ principal at​ this time.
If you​ go ahead and own the​ home for ten years,​ you​ could be facing amazing monthly payments .​
Your monthly payment could more than double on​ you​ .​
Yet,​ there is​ no negative amortization on​ this loan program .​
The interest is​ capped for five years and high-credit score borrowers are currently looking at​ a​ cap of​ 8% over the​ starting rate .​
In today's world,​ the​ maximum the​ interest rate could hit is​ in​ the​ 14% range .​
Yet,​ after five years,​ the​ cap could revert to​ either 21% of​ the​ state's usury.
This plan could work well for the​ dedicated purchaser who puts all extra money and bonuses into the​ mortgage account as​ payment on​ the​ balance .​
The interest is​ then lowered and the​ loan is​ paid off much faster .​
Most borrowers must have a​ score of​ over 660 to​ be approved.
Many advisors suggest the​ use of​ a​ 30-year fixed-rate mortgage with interest-only payments for the​ first ten years instead .​
Yes,​ the​ payment will go up after the​ inital ten years,​ but the​ interest rate won't .​
The concern against the​ equity-line to​ purchase is​ that borrowers would simply write checks without thinking about the​ addition to​ their mortgage balance .​
Plus,​ the​ interest rate is​ adjustable -- always a​ risk.
If you​ are considering an​ alternative loan program for the​ purchase of​ your home it​ is​ important that you​ sit down and do all of​ the​ necessary math .​
For example,​ you​ should calculate how high the​ payment could go due to​ rising interest rates on​ an​ adjustable rate mortgage .​
You should be able to​ afford the​ worst .​
If you​ can't,​ you​ probably should look to​ a​ less expensive home.
If you​ only plan on​ living in​ a​ home for three to​ five years,​ a​ loan in​ which the​ interest is​ fixed for five years is​ perfect for you​ .​
You get the​ lower rate,​ but you​ have to​ be sure that you​ are going to​ want to​ move in​ the​ time period .​
It still remains that the​ best long-term bet for a​ mortgage is​ the​ 15-year fixed rate mortgage .​
You pay less interest and build equity faster.
Other new trends to​ watch for in​ the​ marketplace include mortgages that can be automatically converted into reverse mortgages and longer fixed-rate term mortgages.

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