2. Mortgages are front loaded with interest. This means you pay the interest off first before the balance. It sucks but that’s how the banks get paid.

3. Most normal 30 year fixed loans should be considered interest only loans anyways. As you can see from the example above the majority of your payment is interest.

4. Never take out a interest only adjustable mortgage. You never know if you are going to be able to sell your home or be able to make the new interest only payment when your interest rate adjusts.

5. Always take out a 30 Year Fixed rate interest only loan if you are going to take out an interest only loan. How these loans work is that the interest rate is fixed for all 30 years of the loan. During the first 10 years of the loan you have an interest only option period. What this means is that all you are required to make a payment of is just the interest. After the 10 years the loan will turn into a 20 year fixed loan and you are required to start paying down the balance.

6. What most people get confused about is when they hear interest only mortgage they blame the mortgage company for never letting them pay it off or you never build equity. These are just misinformed people. A mortgage is just like any other bill, if you want to pay it off faster just write bigger checks every month and the balance will go down.

7. Interest only loans come with interest rates that are typically .25% higher than a normal 30 year fixed loan. The reason is because now the bank is not getting the principle balance you would normally be paying so they have to make it up some place else. Ask your lender what the difference in costs would be to get the same available interest rate as the 30 year fixed. It might cost a little bit more because you would be “buying down the rate”.

8. The best benefit of the interest only mortgage is the interest only payment. When you get your bill you can throw additional money on top of the payment or not. Its up to you. The biggest reason people refinance their homes is to lower their payments. So instead of throwing that additional $200 towards the balance this month just keep it in your pocket. After 3 months that’s $600 in your pocket and you do not have to pay thousands of dollars to refinance your loan to take cash out.

9. The absolute best part about the interest only loan is that your monthly payment will recalculate when you put more money towards your payment. As an example we have the same $150k loan at 6%: Your principle and interest payment will be $900 until the day you pay it off regardless if you put $75k on the loan. Sure, you just knocked off half of the time but the same amount of interest is calculated. With a interest only loan it recalculates. I’ll do the math but by using a interest only mortgage calculator you take the same $150k loan at 6% has an interest only payment of $750 a month for the first 10 years and at the end of year 10 turns into the 20 year loan and your payment is now $1075 a month. This is quite a big jump of about $325. Lets say at year 5 you put $75k towards you loan. Your new balance is $75k. Your interest only payment the next month will now be calculated at $75k loan at 6% with a monthly payment of $375. As you can see your monthly required payment dropped $750-$375=$375. If you just make the $375 payment a month at year 10 you will still owe $75k. Your payment will now be $538.

10. The interest only mortgage gives the borrower security in a fixed rate mortgage, the option to pay down their mortgage, and be able to see their payments slowly drop with it. What most smart borrowers do is make what their normal 30 year fixed principle and interest payment would be so their payment would not change in ten years at all.

Post from: The Top 10 Reasons

The Top Ten Reasons Interest Only Mortgages Make Sense

2. A mortgage broker is somebody who is a middle man between banks, credit unions, and investors. They work with so many companies because some have more programs than others or are willing to take a risk on a certain borrower.

3. Mortgage brokers do not lend you money. All that they do is the shopping for you and charge you a premium to do it.

4. If you currently are working with a mortgage broker or have in the past look for a line on the Good Faith Estimate(GFE) where it says Origination Fee or Broker Premium. That $$ number represents what you are paying him to do the work. Guess what, it was not that much work because even though the mortgage broker has connections with 50 different banks they always go to the same 2 or 3 that consistently get the job done for them.

5. This origination fee is usually 1%-2% of the loan, i.e $100,000 x 1% = $1000 commission for them and so on. As you can see this is some good money for basically talking to you for 20 minutes and picking a loan. Most brokers probably close $1.5m-$2m in loans a month = $15k – $40k in commission. Pretty sickening huh.

6. Next time you look at your Good Faith Estimate ask them about the origination fee. They probably won’t know what to say or have some line saying “that’s how we were able to get you a lower interest rate.” In which you could have been given the same rate by the actually bank funding the loan. Interest rates are determined by what happens on the stock market. If you want a lower interest rate than ask your bank what it would cost to get one at that time. You might pay more but it will be less than what you would have paid with the mortgage broker.

7. Ask the mortgage broker about where it says the actual bank such as “Countrywide Home Loans” as being the lender. Ask them that if you would be receiving the same terms (cost, rate, points) etc, if you were to just call Countrywide up. Why would Countrywide charge you that? They wouldn’t. Call the actual lender.

8. Mortgage brokers have been known to use pre-payment penalties with their loans and if you refinance during a 2-3 year time period you would have to pay them a fee up to 6 months of interest. The only way out of this would be to call them and do another loan with them repaying all ofthe origination fees again. The U.S Government has been stepping in lately and is making it illegal to charge a pre-payment penalty. Good job government. Actually doing something right this time.

9. Mortgage brokers were popping up everywhere over the past 5 years and every body was becoming a mortgage broker. It was quick cash and almost none of the states actually had any testing or regulations. With the changes in the mortgage industry many people who were in process with mortgage brokers were never able to close because the broker went out of business or the lender they were going through had their guidelines change and could not fund the loan. This would make the client have to find another lender and go through the entire process again for another 30 days.

10. The housing mess will probably eliminate mortgage brokers because the banks are realizing that they are not going to pay premium for an investment when its actually a liablilty. They have no way to manage their brokers. Its smarter to hire somebody in house, pay them $40k a year to handle checking, savings accounts, loans, etc and give them $250 when a loan closes than to chase brokers around. If they feel like a broker was lying than all the broker has to do is close up shop and thank the bank for closing loans that should have never been closed.

Post from: The Top 10 Reasons

The Top 10 Reasons You Should Never Get A Mortgage With A Mortgage Broker

2. The things that are affected the most are car loans, credit cards, and home equity lines of credit. If you have good credit you are going to get good rates as it is. Even if you do have good credit your credit card rates might only drop from 15% to 12%. Actually credit card companies don’t have to lower anybody’s rates if they don’t want too.

3. Lowering rates hurts people who are financially smart and save.

4. I have watched my online savings accounts with Ing Direct and Emmigrant Direct drop from an easy 5.25% being earned(pretty good for a normal savings account) to less than 3%. Thanks for nothing Fed.

5. If rates were higher it would force people to save more when they are looking to put additions on their homes, buy cars, and put things on credit because then they can’t afford the payments on any of those.

6. People would be invested more into their purchases because they would have put a down payment on any of the things they bought. No more 100% financing for anything.

7. Higher interest rates would force businesses to be smarter with borrowing money from banks. This would keep the stock markets in check because you would have a equilibrium of supply and demand.

8. I hate the Fed. Their dumb. Thanks for fueling the mortgage mess. I know its not entirely your fault, but nobody would have been able to get approved on loans if rate were higher.

9. A savings account would become a good, safe investment vehicle. This would entice more people to learn about finances and investing.

10. I like the number 10.

Post from: The Top 10 Reasons

The Top 10 Reasons I Want The Federal Reserve To Raise The Prime Rate to 10 Percent