Interest Only Mortgages and the Young Professional
All About Mortgages
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.
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A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan.
The word mortgage is a French Law term meaning “death contract”, meaning that the pledge ends (dies) when either the obligation is fulfilled or the property is taken through foreclosure.
A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank or credit union, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably.
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