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Think Twice Before You Take A Home Loan
by Mestrutore Mestico
http://www.fondhome.com
The American dream is generally recognized as home
ownership. And with many lenders relaxing their
requirements, it is becoming increasingly easy to own a
home. Lower down payments (now five percent of the homes'
price when it used to be ten percent) and relaxed income
standards (the home payment used to have to be no more than
28 percent of monthly income; now it can be as much as 35
percent with some lenders) make it easier than ever to buy
a house. However, with the advent of the interest only home
loan, lenders are really cashing in as young couples bit
off more than they can chew in a house.
The interest only home loan works using a system of very
low payments at the beginning to balloon into larger
payments later on. What happens is that the buyer gets a
home loan and only pays the interest on it for the first
seven to ten years. This means that payments can be a very
affordable $300 to $400 per month initially. This is what
helps many first time buyers into a home. Additionally,
because the payments are so low, they feel like they can
afford more house. While it is nice at first, if income
prospects do not match up with the house payments after the
first few years, they can find themselves in over their
heads.
The interest only home loan is a snare, which catches many
an unwary couple. After the initial period of seven to ten
years is over, the buyer has to start paying on the
principal.
This means that all of a sudden the payments go from very
low to quite high, sometimes as high as $1,000 to $1,500 a
month. This is quite the change in the family finances! If a
couple has not had their income increase enough to handle
the huge increase, trouble sets in. They could even lose the
home.
The attraction of an interest only home loan is
irresistible, because it helps you buy a home, which was
otherwise absolutely unthinkable. However, when you consider
the possible consequences, it isn't really worth the risk.
Therefore, it is better to consider your options very
carefully before going in for an interest only mortgage. You
must be fully aware of the terms of the loan before signing
for it. Remember, it's far more sensible to live in a
smaller house you can pay for than live in a bigger one you
can't afford.
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