Foreclosure Shop   Educational Resources
 

Print Debbie Siegel's Mortgage Minute

Debbie Siegel
Interest-Only (I/O) Mortgages - Look Before You Leap!

Sure, an I/O mortgage can help you afford a more expensive property. But beware: eventually it'll slap you with a much higher monthly payment.

With an I/O mortgage, you don't make any payments on the principal for the first 10 years. Then, your payment rises, and the payment must cover both interest and principal for the remaining term of the loan.

Consider, for example, a $300,000 I/O 30-year mortgage when the non-I/O rate is 6.25%.

First, your lender charges a premium of 0.5% for the privilege of an I/O mortgage, yielding a rate of 6.75%. You'd pay $1,687/month for the first 120 months vs. $1847/month on a traditional, fixed-rate 30-year mortgage.

This Article is an excerpt from the 16 Page Print Edition!

Are YOU getting the print edition of ForeclosuresMass Monthly?

Get a FREE copy* of this month's newsletter (worth $49.97!) when you pickup your Real Estate Investors ONLY Free Gift (worth over $267.97!)

First Name:

Email Address:

* Next 37 17 investors only!

But after ten years, your monthly payment on the I/O mortgage would jump to $2,281.09 for the remaining 20 years while the other mortgage payment would remain the same. Why such a big leap? Because you're cramming 30 years of principal payments into 20 years. If your income hasn't risen sufficiently over the preceding decade, you might struggle.

An I/O mortgage might make sense if you:

  • Intend to sell the property within ten years
  • Feel confident about boosting your income
  • Believe that interest rates are falling, so you can refinance at a more attractive rate before the interest-only period ends

But buyer beware: Even in these specific situations, I/O mortgages can be risky. As always, consult a financial planner or mortgage professional to ensure that the product you choose is tailored to your circumstances.

Got questions about real estate financing? Contact Debbie@westchester-mortgage.com or 617-965-1236. She'll consider them for inclusion in a future column. Debbie Siegel is president of Westchester Mortgage in Newton, Mass. She is licensed in several Northeastern states.

« Nothing Succeeds Like Success January 2006  

What did you think of this article? How did this article help you? Let us know, and we just might include your response in the Mail Bag section of the newsletter!
Name: Email:

Did you like this article? You May Also Like:
Eric Woolhiser Winning The Client: Door Knocking For Profit
Eric Woolhiser
Knocking on doors is an effective technique for meeting and connecting with homeowners. It's also overlooked by many investors. Eric Woolhiser explains why this approach is so much more effective than simply sending letters, and offers three, field-tested insights regarding how to put this tool to best use.
Asheesh Advani Success Strategies: Seller Financing
Asheesh Advani
Financing - an arrangement wherein the seller acts as the "bank" for the buyer - has seen a rebirth in recent years, thanks to a market characterized by high prices and rising interest rates. Asheesh Advani explains how this approach works, and why it can be beneficial to both buyer and seller...
John Ralen Agent Success: The Essence of a Good Real Estate Agent
John Ralen
Much has changed in residential real estate sales over the last several years, but many core competencies and strategies remain the same. Many of the skills and attributes that make an individual successful as a realtor...
David Camiel Interview with the Expert: Know How to Use Your Contingencies
David Camiel, Attorney
If you think you can use an escape clause to get out of a real estate contract, think again. Because the courts look unfavorably at escape clauses, contingencies are a better way to protect your interests - as either the buyer or the seller. Veteran real estate lawyer David Camiel explains the legal ins and outs of real estate contingencies and how they can work to your advantage.
Suzanne Brunelle Legal Corner: Do your Homework before Investing
Suzanne Brunelle, Portnoy and Greene, PC
So, you heard you could make a financial killing or find your dream home buying property at foreclosure? That may be possible, but first you need to beware the pitfalls of the novice and, as my father always said, "Do your homework"...
Matt James Success Strategies: Eight Questions to Ask Property Management Companies
Matt James
If you want to buy and hold (rent out) investment properties, but really don't want the responsibility of maintaining them, then a property management (PM) company is your number one exit strategy. Real estate investor and property manager Matt James gives you eight questions to ask potential PM companies, including how the accounting is handled and whether or not the company works with out-of-state investors.
Charles Warnock Success Strategies: Using the Internet to Research Emerging Markets
Charles Warnock
Because travel is expensive and time-consuming, it pays to know how to find information on emerging markets and neighborhoods via the Internet. Charles Warnock, Director of Marketing for eNeighborhoods.com, explains why a town’s Website is your most important first stop, plus how you can find a goldmine of information at local, county and federal government sites such as HUD.
George Riley Feature Article: Financing of Investment Properties
George Riley, Genesis Funding Resources
When it comes to the financing of investment properties, there are almost as many methods and combinations of methods as there are deals. In this month's feature article, George Riley lays out several approaches (some of which you may not have heard of), and offers insight into when and why some are better than others...
Sherrill and Holly Rosoff Interview With The Experts: Fireplaces and Chimneys, High Value, High Risk
Sherrill Rosoff and Holly Bradman, Co-Owners
Fireplaces and chimneys... so many homes have them, but according to Sherrill Rosoff and Holly Bradman, they are often not well cared for. As both a potential fire hazard and source of carbon monoxide, any property owner needs to make sure that the fireplaces are well built and well maintained.
Jennifer Matthews Interview with the Expert: Helping Families Get Back on Track Financially After Foreclosure
Jennifer Matthews, Founder, Creating Financial Literacy, LLC
You can play a key role in helping clients get back on their feet both financially and emotionally by understanding the challenges they face. According to Jennifer Matthews, an advocate for those who have been through foreclosure, often times people lack basic financial literacy and management skills - the lack of which contributed to their financial woes. In this livley article, Jennifer Matthews provides the essential tools consumers need to increase their financial literacy, repair their credit, and recover from foreclosure.

Copyright © 2003-2010 ForeclosuresMass Disclaimer/Policy Media Inquiries
ForeclosuresMass is a division of ForeclosuresMass, Corp. For more foreclosures, visit: RI CT NH VT ME MA DE CA MD PA NJ