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Finance Articles
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Interest-only Mortgages Have Their Pitfalls
By Charles Essmeier
Consumer Debt Management It was fun whilst it lasted. You applied for a couple of credit cards, had a store card on the go and even took out a hefty car loan not so long ago. The more purchases that you made on your cards the higher your monthly repayments became and now you find yourself in the position of making repayments each month with nothing left in the bank. It was easy getting yourself into debt but it`s a lot harder digging yourself out of this hole. Having lived the life of Riley for quite some time the reality has hit you hard and you now need to find an effective solution that can help you to manage your finances better in the future. Help with Consumer Debt Managementcan be found through debt solution teams. They provide structured Consumer Debt Managementadvice to tons of people and can provide you with a plan to help you to get yourself back on your financial feet. One of the schemes that the debt management firm can provide you with is a structured plan for all of your unsecured loans. They will calculate what you can afford to pay each month, negotiate with your creditors and you`ll then pay the Consumer Debt Managementfirm one fixed monthly figure from then on.
There are more different types of mortgages available to home buyers than ever before, and one that is growing in popularity is the interest-only mortgage. With an interest-only mortgage, the buyer pays no principal for the first few years of payments. The period of time varies, and is typically anywhere from one to five years. At that time, the principal is added to the mortgage payments and the amount of the payment increases. By keeping the payments lower for the first few years of the mortgage, the interest-only mortgage allows buyers to obtain a more expensive home than they otherwise might. The buyer?s income will probably increase over time, making it possible to afford the higher payments that will come when the principal is finally added to the payments. The downside to an interest-only mortgage is that no equity accrues in the home if the buyer isn?t paying any principal. For many Americans, the equity in their home is their single largest financial asset, so taking out a mortgage that doesn?t build equity would seem to be a bad idea. Equity has long been used as a last resort source of funding for emergencies. And yet, with the price of homes rising so quickly these days, many buyers don?t seem to care. Equity can be built two ways ? either through paying down the principal or by an increase in the market value of the home. If the value of your home increases, so does your equity, even if you are only paying interest on the mortgage. This is great, so long as home prices continue to increase. But what if prices fall? There are potential problems with interest-only financing. Interest-only mortgages have variable interest rates. If interest rates rise, mortgage payments will increase. If payments increase beyond the level of affordability, homeowners could be forced to sell their homes. This could lead to a glut in the housing market, causing prices to fall. Owners wishing to sell could find that they owe more money than their home is worth and that they have no equity. The interest-only mortgage is a useful tool to help people buy a home they otherwise might not be able to afford. Prospective home buyers should consider whether taking out such a mortgage is a good idea, or whether they might be better off buying a less expensive home. 
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