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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.

Great news! You qualify for a second mortgage. Now what would you like to do with the second mortgage? It will be your answer to this question that determines whether or not your second mortgage is your friend, or your foe. That seems to be an awfully strange way to look in a second mortgage; however that’s exactly what the mortgage will be. Your friend or your foe.

How do you even qualify for a second mortgage, what is a second mortgage, and why would you want a second mortgage? Well, the answers here are as varied as the consumers who apply for such mortgages. Many times consumers need a second mortgage to make improvements on their home. Many times consumers need a second mortgage to put their child to college. And sometimes, consumers need a second mortgage to start a business. The reasons given here for obtaining a second mortgage increase the value of the home, provide opportunity as an investment in your child’s future, or provide the opportunity to increase income. These are the original and most beneficial reasons for obtaining a second mortgage.

Are they the only reasons consumers obtain second mortgages? No. Today’s market has been a great influx of second mortgages to pay off credit card debt, to buy new car, or to simply take a vacation. Should consumers receive a second mortgage for those reasons? Absolutely. Should consumers actually ask for a second mortgage for those reasons? Absolutely not.

An educated consumer understands the consequence of a second mortgage. The educated consumer understands the price of the second mortgage. What is the price of the second mortgage? The equity in your home. When you apply for a second mortgage, you’re trading the equity in your home for cash. You’re giving up your savings.

If you’re trading your savings, in order take a step up, you’ve made the right decision. If you’re trading your savings for a frivolous expense, you’ve made the wrong decision. That’s how you determine if your second mortgage is your friend or your foe.

Today’s consumer is acquiring second mortgages that for many will prove to be their foe. They’re not increasing the value of the home; they’re not educating their children. Nor are they increasing their income earning potential, they’re simply spending their savings. Rising real estate prices, increasing availability of mortgage products, and the decline of savings for the public as a whole is creating the “bubble” effect. The bubble effect occurs when prices rise, spending rises, at a rate greater than can be supported on a long-term basis. At some point, the bubble bursts.

Your second mortgage, if used to increase the value of your home, will have insulated you against the drop in price. Your home is actually worth more; therefore, if prices drop you’re protected. This was the original intent of the second mortgage; to provide the consumer with easy access to the savings accumulated in their home for home improvements, emergency events, or in order to better their homes or lives. You know for the most part consumers do not save money in a savings account; consumers only save money when they aren’t aware that they’re saving money. Home equity was one of the last hidden ways consumers were saving. Second mortgages and other loan mortgage products have managed to eliminate those savings as well. Has the consumer stop to contemplate the consequence of negative saving? Absolutely not, and our current system of mortgage lending encourages negative savings.

Second mortgages are a great way to access your savings and increase your income tax deductions; they are one of the greatest tools available for financial planning and beneficial consumer spending. They are also the fastest way to spend yourself in to debt under socially acceptable circumstances. Many consumers receive offers for credit card debt consolidation and financial analysis. There are never any offers to counsel the consumer concerning their choice in mortgage products, the option of second mortgages, or the consequence of those choices. Your decision to and a second mortgage can be one of the best decisions you’ve ever made or your decision can be one based on folly and frivolous spending. Now, your second mortgage, is it your friend or your foe?

If you were to ask the average consumer to define the reverse mortgage concept, you would find very few able to do so. Many consumers, especially those who aren’t up on their mortgage products and their availability will never have heard of a reverse mortgage, much less able to explain the concept. But it may just be one of the best financial planning tools available to many seniors and those reaching retirement age.

As many individuals reach retirement age, their fixed incomes simply aren’t adequate. They aren’t receiving enough through social security or a pension fund to take care of the rising costs of living and the medical attention many older citizens must have. So what is the solution? Many of these retirement age citizens have children. Why can’t their children supplement their incomes, or simply take care of their elder care needs? The simple fact is that many of their children aren’t in a position to care for their elderly parents. Their incomes aren’t enough to have money left over, and if both spouses work, there is no one to take care of an aging parent.

It is at this juncture that many people have begun to turn to the reverse mortgage in seeking the increase in monthly income that is so desperately needed. The reverse mortgage offers older citizens a way to benefit from the equity in their home, because the reverse mortgage turns that equity into a monthly income. Quite frankly, unless you live with your parents, or you intend to move into your parents home when your parents pass, you aren’t going to retain the home; statistics attest to the fact that the vast majority of children sell their parents home, once their parents are no longer in need. Why not cash in on that equity when your parents are alive, and need the monthly income?

The popularity of the reverse mortgage has been steadily increasing, and many reverse mortgage companies expect 2005 to be a banner year. As the idea begins to catch, and spread among the elderly, there are more mortgage companies that offer a reverse mortgage product. The key here is that most of these elderly did plan for retirement; they did try to make the necessary adjustments so that there monthly incomes would be enough to see them through their retirement years. Thanks, however, to the rising cost of medical care, prescription medicine, and heating fuel, many older citizens have found that their planned retirement income each month is simply not enough.

There are those reaching the retirement years, for which the reverse mortgage is not an option, simply because they have no equity in their homes, or they don’t own a home; but for the remaining seniors, it’s an option that I would exercise, especially if I were certain my home would be sold during an estate or inheritance sale. The money that the reverse mortgage generates, can add so much to the few years we have during our retirement in the areas of travel, entertainment, and sheer enjoyment of life.

Since we can never be sure that we’ve properly prepared for retirement, or that some unexpected emergency won’t knock us off our feet, or that we simply do not have enough thanks to the stock market losses of recent years, the reverse mortgage is one of the best ways for older citizens to access the equity in their homes and turn it into ready cash.

We have saved the best part, however for last: any proceeds from the reverse mortgage are tax-exempt proceeds. In other words, you will not have to pay tax on the money. There are other, tax-exempt options, but the reverse mortgage remains one of the most conducive to the senior citizens needs, as well as those of their families. The interest payments on a reverse mortgage are deferred until death, therefore, seniors do not have to be concerned with making interest payments or tax payments on the proceeds.

If you’re not familiar with the reverse mortgage, and you think you might benefit, or that your parents might benefit, take a moment to seek the advice of a financial officer, and then quite possibly your attorney. Never make any decision before you fully understand what the consequences of your decision might be, legal or otherwise.