http://www.articletrader.com/ Articles at ArticleTrader en-us http://www.articletrader.com/finance/mortgage/mortgage-101-interest-only-loans-whats-so-interesting-about-them.html http://www.articletrader.com/finance/mortgage/mortgage-101-interest-only-loans-whats-so-interesting-about-them.html Tue, 17 Apr 2007 00:00:00 -0500
What are the facts about interest only loans and why would anyone want an interest only loan? The most obvious feature is that you are not paying any of the principle of your loan, only the interest. This means you would still owe exactly the same amount after your term as when you started. Sound crazy? Maybe so, but it does allow for some luxuries and some tax considerations. One certain result is a much, much lower monthly payment. But this can also have its downside.

Many people are worried that if interest rates rise, those who bought with interest only or adjustable rate loans will lose their homes. Certainly, there are some people who are playing the very dangerous game of buying more house than they can afford. However, the entire mentality of the market may actually be changing to adapt to changing interest rates.

Many people are buying homes with adjustable or interest only loans knowing full well that in five years they will either move or that their house may have less equity. People are starting to treat their homes like car leases, caring only about the monthly cost to have the best they can afford. The difference? Cars don’t typically go up in value year after year like real estate.

On the other hand, if you are buying investment properties with negative cash flow and expect the values to increase over two to three years, watch out! What if the values decrease? What's your backup plan? Can you rent it for break-even cash flow? Can you sustain negative cash flow until the market rebounds?

If so, then don't sweat it. You'll also pick up a whole bunch more properties at the bottom of the real estate cycle. If not, then you are a speculator, not an investor, and you are at the whim of factors beyond your control.

Such activity is very risky, to say the least, and it is disturbing to see that many investors are doing just that in some of the hottest markets. Worst of all, they are doing so with interest-only loans, with no "Plan B."

If you think you can get a revenue property and write off the “interest”, then an interest only loan may not be a bad idea. This is, however, a consideration best left for the accountants of the world. If this is your strategy, best to fully research the tax laws and know exactly what you are getting into.

The bottom line is, the real estate market may go up, and then again, it may go down. So you really need to know why you are a home owner in the first place. If you are raising your family and you want to pay off a home and be mortgage free someday, interest only loans are not for you. If you have an altogether different reason or strategy for wanting an interest only loan, they are certainly available in today’s market.

To learn more go to www.unisourcemortgage.ca
and utilize the on-line help or send us an e-mail with your specific questions.

Gordon Ross, B.Sc., AMP
Unisource Mortgage Canada


--
Gordon Ross is the broker/owner of the Unisource Mortgage Canada Corporation and is a respected expert in Canadian mortgage finance and real estate investment. An accomplished author and lecturer, Gordon has always focused on a “people first” philosophy striving to provide sound financial advise through information and education based solutions.

Gordon holds degrees in Business and Science from Arizona State University and holds his AMP designation with the Canadian Institute of mortgage brokers and lenders. He is also an active director of the National Alliance of Independent Mortgage Brokers.

For more information please go to www.unisourcemortgage.ca


Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/mortgage/mortgage-101-how-to-pay-off-your-mortgage-fast-and-save-thousands-in-interest.html http://www.articletrader.com/finance/mortgage/mortgage-101-how-to-pay-off-your-mortgage-fast-and-save-thousands-in-interest.html Tue, 20 Mar 2007 00:00:00 -0500
1. Payment Frequency:
Payment frequency simply refers to how often you will make mortgage payments or the frequency with which you make installments. There are several options when it comes to payment frequency, but one in particular, accelerated bi-weekly payments, will help you pay down your mortgage much faster.

You may have heard of bi-weekly payments, you may even be making bi-weekly payments, but do you have the right kind of bi-weekly payments? Here is an explanation of the right kind of bi-weekly payments and some key differences to be aware of…

Bi-Weekly Payments: (The wrong kind)
This option does not make a huge difference to the life of your mortgage. Assume you have a payment of $1,000. The $1,000 a month payment is multiplied by 12, the number of months in the year, and then divided by 26. This equates to a bi-weekly payment of $461.54 which means that at the end of the year you will have paid exactly $12,000! No different than if you had made 12 equal monthly payments of $1000.

A very small amount of savings are gained due to half of your payment being made early each month. The main reason for choosing this option would be the convenience of matching your payment to your pay days.

Bi-Weekly Accelerated Payments: (The right kind!)
This option does make a huge difference to the life of your mortgage. With the accelerated payments option, payments are exactly half of a monthly payment amount and are collected every two weeks. This means exactly every 14 days, not the 15th and 30th of the month. For example if the monthly payment is $1,000, the bi-weekly accelerated payments will be $500. This will mean that over the course of the year you will pay 26 payments of $500 or $13,000 in total.

How does this make such a big difference?
Payments are made on the same day every 2nd week. For example at the time of writing this article, March of 2007, the payments would come out on say every Friday. This would mean payments on March 2nd, 16th and 30th. That would mean during the month of March you would actually have 3 bi-weekly payments made. This would happen only during 2 months of the year, but does equate to one extra full monthly payment per year.

Stated another way:
If you pay $1,000 per month X 12 months = $12,000 in payments for the year, but if you pay accelerated bi-weekly then it is $500 X 26 = $13,000.

The amount of interest is the same, therefore, the additional payment of $1,000 (or the amount equal to one full monthly payment) will be deducted directly from the balance owing on your mortgage each year. This coupled with the fact that you are making more frequent payments will quickly lower your principle balance and thus the amount of money you are paying interest on.

2. Additional Payments:
Most lending institutions will allow you to make additional payments. This can mean a one time lump sum payment, or several lump sum payments throughout the year. Often this can be done in conjunction with your regular mortgage payments. You may have heard of “Double up” payments. This simply means doubling the amount of your payment for as long as you wish. ($2,000 per month instead of the usual $1,000). The total amount you can pay additionally in a year will vary, but can not exceed the pre-payment privilege for that year. The pre-payment amount is always pre-set and ranges typically from 10% to 25% per year.

3. Shortened Amortization:
At the end of each mortgage term, you have a renewal date. If interest rates at this time are about the same as they were when you first got your mortgage, or even lower, then you should consider decreasing your existing amortization period. A reduction in your amortization means a shortening of the total length of time it takes to pay off your loan.

All the amortization really does is determine your monthly payments. The larger you choose to make your payment amount, effectively the smaller the length of time (amortization) it will take to pay off your total debt. Renewal time is always the best time to consider switching your mortgage to another lending institution. A mortgage broker will be able to obtain a better interest rate than you can negotiate by your self, so it is often best to consult a broker. This should be done approximately 4 months before your renewal date to guarantee the lowest rate at the time of renewal.

To learn more go to www.unisourcemortgage.ca
and utilize the on-line help or send us an e-mail with your specific questions.

Gordon Ross, B.Sc., AMP
Unisource Mortgage Corporation


--
Gordon Ross is the broker/owner of the Unisource Mortgage Canada Corporation and is a respected expert in Canadian mortgage finance and real estate investment. An accomplished author and lecturer, Gordon has always focused on a “people first” philosophy striving to provide sound financial advise through information and education based solutions.

Gordon holds degrees in Business and Science from Arizona State University and holds his AMP designation with the Canadian Institute of mortgage brokers and lenders. He is also an active director of the National Alliance of Independent Mortgage Brokers.

For more information please go to www.unisourcemortgage.ca.

Source: http://www.articletrader.com ]]>