Rate Hikes Have Changed the Lending Landscape

Interest-only loans have been an option for homebuyers and homeowners for many years and they offer several advantages, depending on the situation. As with all decisions regarding finance options for home loans, it’s important to understand the goals of the individual borrower as well as the circumstances, which include timing.

The opposite of an interest-only loan is an amortizing loan, and to amortize a loan means you reduce the principal as well as pay interest DUE. The definition of the word “amortize” is to pay off (an obligation, such as a mortgage) gradually usually by periodic payments of principal and interest or by payments. The root of the word “amortize” actually comes from the Lain word “admortire” which means to kill, so you are killing the loan balance when you amortize a loan. Kind of creepy but that’s way our language works.

The first question a good mortgage loan professional asks a borrower is “how long do you plan to own the property?” that’s very prudent because the answer will affect the type of loan appropriate for each situation. Probing for and understanding every borrower’s long-term and short-term goals is crucial to recommending the right loan.

Borrowers looking for the lowest possible payment are often interested in interest-only loans. The practice of “flipping” properties has become very popular as real estate values have increased and investors are often looking to make a profit over a short time period. Interest-only loans can be very attractive to borrowers in these situations because they have no desire to reduce the loan balance but hope to pay it off entirely in a few months.

Since interest-only loans are usually short-term, it’s important that there is no prepayment penalty as that would usually defeat the purpose of the overall transaction.

Interest Rates

Obviously, one of the most significant issues when borrowing money is the interest rate. Many people may not know that in October of 1981 the average 30-year fixed rate for a home loan was over 18 percent! Rates have gradually gone down since then but seem to have bottomed out and are beginning to rise. There are several options available for borrowers interested in an interest-only loan.

Terms

The term of a mortgage loan is the time allowed to pay back the money. There are short-term loans ranging from a few months to long-term ones covering several years, while some have a “balloon payment” where the full balance becomes due on a certain date.

Mortgage Professional Consultation

Probably the most important element in a mortgage is the knowledge and experience of the professional handling the transaction. Starr Mortgage Company, Inc. is proud of our online reputation because over 100 customers have posted 5-Star Reviews on Google and with every new borrower we pledge to keep that record going. We understand that every mortgage customer is unique, as is their situation, and the proper guidance to the right loan will benefit everyone.