Interest Only Or 50 Year Mortgages Do They Really Make Sense

Interest Only Or 50 Year Mortgages Do They Really Make Sense

Interest-Only Or 50 Year Mortgages - Do They Really Make Sense?
With hotspots like Las Vegas,​ much of​ California and Florida still enjoying a​ good real estate market,​ many banks and mortgage companies are now spreading out payments over 50 years to​ make them more affordable .​
Prior to​ these 50-year mortgages,​ interest-only mortgages were promoted and sold as​ the​ way to​ go .​
The real question here is​ which is​ better?
Let’s first digress on​ what an​ interest-only mortgage is​ .​
Interest-only home loans or​ mortgages aren’t as​ a​ general rule permanently interest-only .​
The bank or​ mortgage company will normally offer the​ borrower 2 to​ 5 years at​ interest-only; after that they must start paying off the​ principle .​
During this time,​ the​ principle has grown .​
a​ great many borrowers may find themselves unable to​ pay the​ higher payments that come at​ the​ end of​ this interest-only period .​
in​ this case,​ interest-only loans are similar to​ ARMs,​ and have similar default and foreclosure rates (higher than for regular fixed mortgages where the​ payment stays the​ same throughout).
The 50-year mortgage simply spreads your payments out over a​ longer time period and greatly increases the​ amount of​ interest you​ will payback; this also tends to​ reduce your build-up of​ equity .​
Alex Diaz Jr.,​ Vice President of​ Statewide Bancorp in​ Rancho Cucamonga,​ stated that the​ 50-year mortgage has particular appeal in​ California because prices are higher than the​ rest of​ the​ country .​
The 30-year fixed mortgage is​ great,​ but with gas prices so high,​ people we're dealing with are concerned about making prices work,​ and the​ 50-year mortgage is​ something they're starting to​ consider .​
the​ real estate market has grown by leaps and bounds in​ California with the​ average home selling in​ excess of​ $300,​000.
The 50-year mortgage was designed to​ do three things .​
First,​ it​ makes it​ much easier for someone to​ buy a​ home in​ these high price areas .​
Second,​ it​ can help buffer and insulate the​ borrower against a​ housing bubble or​ possible localized deflation .​
Third,​ it​ keeps the​ selling prices high .​
However,​ many so-called real estate experts will tell you​ that the​ interest-only loan does the​ same thing,​ but does it? the​ main problem with the​ interest-only loan is​ that it​ does not insulate or​ offer any protection for the​ borrower from increasing principle,​ negative equity (which can happen should there be a​ drop in​ housing prices),​ and,​ of​ course,​ those increasing payments when the​ term you​ agreed is​ over.
Keeping this in​ mind,​ plus the​ fact that there is​ only a​ very minor difference in​ initial payments (payments over the​ interest-only period),​ clearly the​ 50-year mortgage should be a​ better way to​ go.
If your budget allows,​ a​ good tactic to​ use is​ to​ make bi-monthly payments which will reduce the​ interest and term of​ the​ loan saving you​ many thousands of​ dollars .​
There are many lenders out there now offering this option to​ their borrowers .​
as​ they say,​ the​ real money in​ real estate is​ made from buying low and selling high.
The problem is​ that in​ most of​ these hot communities,​ the​ selling price often ends up being much higher than the​ asking price,​ plus houses do not stay on​ the​ market for very long at​ all .​
So,​ buying low is​ normally out of​ the​ question .​
Just try finding a​ bargain foreclosure or​ HUD homes for sale in​ California,​ it's a​ little like trying to​ find gold in​ the​ old days .​
in​ these hot communities,​ the​ real money is​ made by buying and holding for a​ number of​ years allowing for the​ yearly increases and returns on​ additions and upgrades .​
Money can be made for sure,​ but with a​ uncertain future .​
It is​ really best to​ have a​ payment program set in​ stone – always use a​ fixed term and rate mortgage .​
You can still sell in​ five years or​ less,​ make money,​ and have the​ added comfort of​ a​ fixed payment.
Have an​ opinion or​ a​ question you​ would like me to​ answer,​ then write me!

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