Martha Parrette of GMAC Mortgage is today's guest blogger. Martha has more than 20 years experience in the real estate mortgage business, from origination to closing. This experience combined with her unique enthusiasm for her work, keep her among the favorite mortgage consultants in New London County. She can be reached at martha_parrette@gmacm.com We've all heard 'have I got a deal for YOU! If your mortgage interest rate is more than 1.25%, write down this number and call….' Before you make that call….you need to know more. Unless you have a solid plan for your monthly savings, that crazy low interest rate is going to just buy you time (and maybe a boat) until the bank comes looking for the real interest payment, if you don't plan ahead. 'Interest Only' loans are the latest rage in mortgages, particularly with interest rates on the rise. Those who make money with this loan do not go out and buy a boat with their monthly savings. They invest in something that makes them more money than what they are spending to borrow it. When they have to start paying the fully amortized payment at the higher rate, they are prepared and have earned some money on the other investment. Depending on the structure of the loan, you can see significant monthly savings….for a short time. There are hundreds of interest only options available, but don't budget based on that lower payment. 'Interest Only' is a payment OPTION. Be very careful when you explore these OPTIONS. There are both fixed rate and variable rate loans that have interest only payment options. If you opt for the fixed rate, you have the security of knowing that when you have to pay the fully amortized payment (the full principal and interest payment), at least your rate is fixed. Variable rate loans are based on several indices and it's important to know their volatility when choosing your loan, because that (and the 'margin') will determine how the rate changes. From the old school of 'if it sounds too good to be true...', remember that lenders pay more than 1.25% for the money, so they will surely get more than that from you, one way or another. Before you sign on the bottom line, read (and understand) the disclosures carefully, consult a trusted financial advisor and make sure you have a plan for the worst case scenario of your interest only loan. Then, whatever you do, please wait to buy that boat. |
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