Loan Allows Buyer To Afford More Expensive Home
OMAHA, Neb. -- More Americans are grabbing the American Dream every day, but when it's time to sign a mortgage, should you select an interest-only loan?
Interest-only mortgages can save you money now but can cost quite a bit more later, experts told KETV-TV.
With this type of loan, the buyer can defer any principal payments typically for up to 10 years. The balance comes due at some future date.
The loan was the norm for mortgages before the Great Depression, and now they're popular again, reported the television station.
"Consumers right now live lifestyles outside of their means," said Terry Williams, with Homesmartz. "Whether it's a mortgage or too much debt, it's the American Dream to live outside their means."
Sales of new houses and their prices continue to increase.
By delaying the inevitable cost of principle payments, Williams said, a homebuyer can save $100 every month on a $100,000 mortgage.
"Some use them to leverage more house than they can really afford. Some use them purely as a tool to leverage dollars to transfer assets to other assets," Williams said.
Williams said that extra money can build wealth if it is invested properly.
According to Bankrate.com, an interest-only mortgage may also be a good fit if the buyer's income is mostly in the form of infrequent commissions or bonuses, or the buyer expects to earn a lot more in a few years.
Of course there is some risk involved.
Federal Reserve Chairman Alan Greenspan warned last week about interest-only mortgages, saying that if housing prices were to fall and interest rates continue to rise, borrowers may have problems repaying those loans and could suffer "significant losses."
via NewsNet5.com
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