Mortgage leads loans Rates

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.

Have you ever noticed if given the choice, day average consumer is going to buy as much as possible on as little as possible. Now that’s okay if you happen to be buying an air conditioner, or a pair of shoes or a pair of blue jeans; but when it comes to your home mortgage, bigger is not always better. In the real estate market of today there are many analysts all both sides of the fence that will argue for or against the interest only option and the effect it has on consumer spending.

Right now the vote is still out on exactly what it will cost the taxpayers should we experience a tremendous drop in real estate prices. During the first half of the century the interest-only loan was used extensively. When the Great Depression began, unfortunately, many homeowners who had made use of the interest only loan lost their homes. Today, the interest only loan quarters a full one fourth of the market segment, and that kind of growth is frightening to every economist associated with the real estate market. Why does this kind of growth frighten an economist? The answer is simple: exploding growth in real estate that creates this type of loan market growth is not always stable.

Now, what happens to the consumers who have purchased the interest only loan and the real estate prices drop? What if they owe more now than their property is worth? See, this is where the economist gets really frightened. Defaults on loans, bankruptcies, and a tremendous burst of the real estate bubble could be the resulting conditions.

What else has happened here? Once again consumers have managed to overspend themselves and live beyond their means. Apparently in an optimistic and booming economy this seems to be all right, but when the economy takes a downturn and real estate prices drop, what happens to the consumer with the interest only loan, and no equity? I will tell you what happens. Homeowners can no longer support the mortgage, or rather the real estate value can no longer support the mortgage, and when it is time to refinance a home there is more mortgage than home. In the defense of the homeowner, many of today’s mortgage lenders refuse to counsel the consumer about the real consequence of borrowing beyond the value of the home, or borrowing without investing in the value of the home. Eventually, living beyond your income levels will result in a negative impact.

Consumers don’t often consider the worst case scenario especially during the time of purchasing a mortgage product. No one assumes the worst; everyone likes to imagine that everything will work exactly as planned. But if your monthly mortgage payment stretches you to the limit and if the budget doesn’t leave room for reserve, you’re going to find that at some time you’ll be short. If you’re using the interest only mortgage loan to purchase a home that is really bigger than what you can actually afford with a standard mortgage watch out.

Thanks to the exploding growth of the mortgage loan segment, especially in the interest only loan, you can now buy more house than ever on less money. No down payment requirements and a nice affordable mortgage payment. The problem however is that the borrower who uses tomorrow’s salary to buy tomorrow’s home today, will usually have the same spending habits when tomorrow’s salary is today’s salary.

There are individuals for whom the interest only loan is a tremendous benefit and is a perfect fit for the loan. The young professional with a great future, and no intention to remain in the area for more than five years, is the perfect candidate for an interest only loan. But very few of the actual applicants with interest only loans fit this description. Unfortunately, many of applicants for the interest-only loan are simply consumers who want more house for less money. The big house, with the great job, and the picket fence with 2.5 children is a great dream to have. You just need to make sure before you step onto the dream cloud that you’ve got the net beneath you, something must catch you when you fall!

Here is one of the successful candidates for the interest only mortgage. The young professional that is eager to get out into the home ownership market. He or she is equipped with some level of mortgage product comprehension, and a guarantee of increasing income.

Today’s mortgage market has seen a tremendous growth in mortgage packages, variety and borrowing levels. The interest only mortgage option, once thought to have gone the way of the Edsel automobile, is back today and in use by the masses; in fact the mortgage market has seen an increase in the interest only mortgages from just a mere sliver of the market a few years ago, to around 23% of the market share currently. That’s huge growth, especially in the mortgage industry in less than 5 years.

Who will benefit most from this type of mortgage loan product? What type of consumer is it that would want an interest only mortgage? Well, you will get several answers, but only one or two will be correct. The really smart and savvy borrower, with clearly established goals and objectives that include the interest only option, the young couple that are moving up the corporate ladder and won’t be in the area over three years, and then there’s the most often sited consumer: This consumer is buying a home with a fairly limited budget and wants as much home as they can possibly buy. They generally fit into the category of the couple with children, who need room and who plan to be homeowners at that location for a while. The other particularly successful candidate for these types of loans are the young real estate investors, who are profit creators, and won’t retain the property long enough to warrant making a large capital investment.

As you examine the young professional, his or her situation is conducive to minimal investment requirement. He or she won’t be in this job position or this home over 5 years, and the most likely, the company is willing to include a buy back clause in the employment contract; how can you lose? All the right elements are in place for this to be a great marriage of needs and wants being satisfied with one package. In cases such as this, the interest only mortgage option is a great route to take.

What about the young couple with the growing family? Are they the right candidates for such a purchase? Most often, the answer would be yes. They’re budgets are limited, for the present, and their family is outgrowing the present home. Especially if one of the spouses holds a professional degree, they should have no trouble growing into a larger mortgage payment within a few years. The interest only option gives individuals 3 to 5 years to achieve an income increase, then the principal and interest payment level kicks in, but their income will then support a higher payment.

The real estate investors, commercial developers, land brokers, and any other investor that operates within this realm of business, is a potentially successful candidate for the interest only option. This person, or business group, doesn’t intend to retain the property long enough for there to be a need for capital investment. They need the capital free to make the changes, required planned construction, or to advertise the property for sale.

These are the potentially successfully and beneficial relationships that exist with the interest only option. Are these the only individuals who secure interest only mortgages? Definitely not. Regardless of the pros or cons to the interest only mortgage, and regardless of the original intent, many of the consumers securing these interest only mortgages are doing so in order to lower monthly payments, to buy more house for less money, and even to divert income to tax-deferred savings. Some will be successful some will simply wind up paying on their home for most of their life.