Buying a home, like any other big purchase, ought to be done only after one has taken all measures to ensure that they are educated, informed, and prepared.  There is nothing more gut wrenching and heart breaking, not to mention just downright depressing, than committing yourself to a six-figure debt only to find out that you didn’t actually pick the best kind of debt for yourself.  Now, I know that some of you, like me, were taught that debt was a bad thing.  Well, that is half true.  There are too kinds of debt, responsible and irresponsible.  Irresponsible debt will be a topic for a future article but I think it, well, responsible, to talk about responsible debt as it pertains to the purchase of a house.  The house purchase is generally considered an all around good idea.  The debt is usually considered responsible across the board.  There are, however, varying degrees of responsible debt even within the boundaries of the house purchase.  Having said that, I would like to take a look at what an interest only mortgage is, whom it is designed for, what the rewards are, and what the long-term implications are.

What is an Interest Only Mortgage?
An interest only mortgage is almost exactly what it sounds like.  There is indeed a principle amount that goes along with it and you will indeed be held responsible for the reimbursement of that principle loan.  As the layman would say, if you borrow $100 and you only pay the interest for a while, you still eventually have to pay the $100 back.  What an interest only mortgage does is allow you to, for a certain period of time, only pay towards the interest of the your loan.  It doesn’t cut down the principle at all, at least not until the designated period is up (usually 5 years).  

Who is the Interest Only Mortgage Designed For?
The interest only mortgage is designed for the homebuyer that is on a tight budget, or the homebuyer that wants to buy something that is out of their price range.  I suppose that in both situations the homebuyer cannot afford the house but in one case they don’t earn enough to buy anything and in the other, they just want to be able to live outside of their means.  But, nonetheless, the interest only mortgage is for both of them.  This loan is also designed for people who are fairly certain that their income will be increasing within the next few years because, unlike a fixed rate loan, the payments on an interest only loan do rise.

What Are The Rewards?
There are some really great rewards to an interest only loan.  Because you only are paying the interest and none of the principle, the amount of your monthly payment decreases.  On an average size of, lets say $200,000, it will save you around $175-$200 per month in payments.  For someone on a tight budget, that is a big difference.  On a $1 million dollar loan the savings will approach $1,000 per month.  The downside to it is that after the first 5 years (or whatever the term is that you have worked out for the interest only part) your payments will jump up and be higher than they constant payments on a fixed rate loan.  It is definitely a nice way to get into something that you cannot afford now but are sure you will be able to afford later.  It is also nice for someone who is interested in buying a house and reselling it in a few years for a profit as the money paid into it, the all around total investment, will be less.

What Are The Long Term Implications?
Speaking of the long term is where the interest only loan begins to get scary.  Imagine that you take an interest only loan for $100,000 and begin making payments.  Because you are paying only the interest the payment would drop from the average fixed rate payment of around $600 per month to $500 or so for the interest only loan.  You continue in this manner for five years and then the remaining balance is converted into a fixed rate loan.  You still have an outstanding balance of $100,000 but now you only have 25 years to pay it off instead of 30.  In the end you will wind up paying $8000 to $10,000 more over a 30-year period.  If, however, you do not plan on actually staying in that house for 30 years, the long term implications is not that important.  

Conclusion
As I see it, if you are trying to get a house that you want to stay in until you are old enough to leave it to your grandchildren, perhaps the interest only mortgage is not the best option for you.  It would be better in the long run to go with something else, something that will not cost so much in interest.  But, if you are young, nomadic, or on your way up the corporate ladder, this is definitely something to consider.  This type of mortgage will allow you to get into a pricier house, have a little extra money for upgrades, and then sell it in a few years for a large profit when that job promotion forces you to move to another city.  It is a great way to save money in the beginning but can be a real gamble if you stick it out for the long haul.  And, as always, sit down with a trained professional who knows your situation, your needs, and your desires.  They will be the best assets you have when it comes to your assets!

Hopefully you found this article helpful, it was provided by JVM Lending, the leader in CA Home Loan and CA Mortgage loans.

House valuations is the main reason many people can not refinance at these otherwise very suitable environment. You need to find out how much is your home worth at the moment. There are websites where you could check how much the houses sold in your street recently. real estate agent listings are other sources of property prices. Find out how much equity you have in your home before starting your refinance shopping. For conventional mortgages, you need to have good equity to get good rates. Although there are other options available with low loan to value, it certainly reduces the choices available. 

While the mortgage rates are low, savings interest rates are just about worthlessly low. Therefore, many homeowners decide to use their savings to lower loan to value, so that they could refinance with the best rates. Securing the best rates is important, because you want to complete refinance mortgage and forget about it for a few years to reap most savings out of switching lender. Ideally, you do not want to incur another refinance closing costs for a few years. Paying into a refinance deal is an alternative for people who have the means. Lower monthly payments after refinancing will let you put away cash faster. 

Now is the time to find out your existing home loan rate and compare them with the current rates offered. You will come across many articles and experts using a 2% improvement in rates to make it worthwhile to refinance. However, if you are intending to stay in your home for the next 15 years, much less rate gap will justify refinancing. Mortgage refinance rates are record low, so this will probably be your last refinance unless you decide to move. Another good example is refinancing to fix your adjustable rate mortgage. These low rates will not last forever. Think how much you could save if the rates were to shot up a few points. Furthermore, you will be able to sleep well with fixed rate home loan.

Final determinant is your credit score. If you have been improving your credit score since you have taken your mortgage, you have a very good chance of qualifying for good rates. In conclusion, do the math very carefully; you will be able to see things more clearly when you put them on a paper.

Operating a Home Based Business

If you use part of your home to operate your business then you can deduct a percentage of home related expenses such as utilities, phone, mortgage, insurance, and even maintenance on the home.

Vehicle Deductions

If you use your personal vehicle for business purposes then you can deduct car related expenses such as mileage and car repair. If your business owns a vehicle then you can deduct the entire amount of the vehicle. You are currently able to deduct up to 58.5 cents per mile for business travel. That can add up to a lot of savings for your business.

Payroll

If you have employees that you pay to help operate your business then those expenses are deductible as well. If you currently offer and contribute to employee retirement plans, those can be considered a business expense.. You can also deduct the insurance premiums paid on these employees.

Rent or Mortgage

You can deduct either the rent or mortgage you pay monthly for the space to run your business. If you run your business from your home you can also deduct either the rent or mortgage. Don’t forget deductions related to mortgages such as mortgage interest and points, insurance, and property taxes.

Visit TurboTax Online to find many more business related tax deductions. TurboTax Online offers free deduction maximizers

I could compile a huge long list but, I won’t. If you want the huge long list you can consult the publication from the IRS called Pub 535. I’ll save you the agony of reading boring material in this article.

ARM, is perfect in case you are certain about rising income expectations and short-term home ownership. You will find four basic aspects. One is that the initial curiosity rate is fixed 1-3 percentage points reduced than fixed price mortgages. Second there is what is known as adjustment interval, when after the initial period has elapsed the price is modified in keeping with prevalent rates. Third, an index against which lenders can measure the difference between the interest earned on the loan and what would be earned in actuality in other investments. And, fourth, the component added by the lender towards the index, usually 1.5-2.5 percent.

An ARM has in addition, safeguards like curiosity price caps. This limits the amount of interest rate that can be applied to the payment during adjustment. Normally this cap would be about 2% point cap more than the life of the loan.

ARM is perfect when it lends you buying power. You can opt to purchase a property with a higher value and still pay a reduced initial monthly payment. If you know for specific that you’ll reside inside the house you are getting for a maximum of 5-7 many years then ARM is the mortgage that will save you funds. In case you are prepared to take risks then ARM offers the greatest possible savings especially if the rate stays steady or declines more than the years.

ARM is a calculated risk as you can find no certainties.  However if at the end of five years your plans change and you might be about to continue within the same home for an additional 10 many years then it is prudent for you to switch from ARM to a fixed rate mortgage.

You can find more information about mortgage interest deductible, house closing cost, and 80 20 mortgage loan

Interest only mortgages can be advantageous for people in markets where residences appreciate quickly and the plan is to remain in the house for just a couple of years. Interest only mortgages are available in both fixed rate and variable rate kinds, but most interest only mortgages are of the variable rate variety. Since only an interest payment is due, an interest only mortgage usually has a lower monthly mortgage payment as compared to mortgages that demand principal and interest payments. For example, if you have taken an interest only mortgage loan for 5 years you only pay the interest against your mortgage that 5 years. The interest only mortgage rate can be an adjustable rate based on the current index interest rate. This preset margin will always be fixed throughout the remaining term of the loan even though the interest only mortgage rate added to it should change (typically on an annual basis) with the fluctuation of the present index rate. So following the interest only mortgage payment period is over you will end up paying the adjusted interest only mortgage rate as well as the principal, that’ll increase your interest only mortgage payments.

Interest only mortgages usually have an interest only payment option during the first 1, 3, 5, 7, or 10 years of the mortgage. Interest only mortgage payment does not always mean negative amortization. Interest only mortgage payment loans are not long term solutions. Interest only mortgage loans are the latest program geared towards offsetting high home prices. Interest only mortgages symbolize a fairly higher risk for loan companies, and therefore are subject to a a little bit higher interest rate. Interest only mortgage loans are popular ways of borrowing money to acquire an asset that is unexpected to depreciate much and which can be sold at the end of the mortgage loan to pay back the capital. Interest only mortgage loans assisted homeowners to afford more home and earn more appreciation during this time period. Interest only mortgage loans may turn into a bad financial decisions if housing prices fall, causing those borrowers to carry a home loan larger than the value of the house, which in turn will make it difficult to refinance the house into a fixed-rate mortgage.

It is important to take into account the dynamics of interest only mortgages. “Even though interest only mortgages play a significant part in the mortgage industry, typically offering the only means for first time buyers to hold the key to their own front door, misusing this type of loan is counter-productive.

A sample of the 3 payment options on a mortgage loan amount of $250,000 would be:Minimal Amount Due 804, Interest Only Mortgage $989, 30 year payment $1304, 15 year payment. In summary, an Interest Only Mortgage Loan can save you thousands of dollars and perhaps earn you thousands more with the right diversified investments over time. An interest only mortgage loan provides individuals the instruments necessary to handle their debts as carefully as they control their assets. 30 year interest only mortgages generally come with a 10 year (also known as as a 30/10 year interest only mortgage fifteen year fixed (30/15) interest only period. Best for those who: Are very dedicated to money management Wish to lessen their monthly mortgage payment, Don’t plan to be in their homes more than a couple of years.

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