| Most of us have heard of home equity loans. You | | | | loan and you might get stuck with a mortgage |
| know, refinancing your home for a second mortgage | | | | payment even higher than had you financed a more |
| to pull out some extra cash for home improvements | | | | traditional loan.The Los Angeles Times ran a feature |
| or bill consolidation. But, did you know you could | | | | article by Jack Guttentag about interest only home |
| refinance your home and actually pay less on your | | | | equity loans. "In the 1920s, loans of this type were the |
| mortgage every month? If you are planning to stay in | | | | norm; borrowers typically refinanced at term. But the |
| your home for less than ten years or need some time | | | | Depression of the '30s caused many to go into |
| to stash away some much needed savings, an | | | | foreclosure, and lenders stopped writing the loans." But |
| interest only home equity loan might work for | | | | Guttentag also writes that the interest only loan is not |
| you.Home equity loans and credit lines usually have | | | | always the smart investment. "Suppose you have a |
| variable time periods ranging from three to ten years. | | | | 6.25% mortgage and your financial plan calls for |
| After the initial period is complete, the loans convert | | | | increasing your wealth this month by $100." If you put it |
| into a full amortized loan. Here's an example: In a | | | | in the bank, you may earn 2% to 4%. If you put it in |
| traditional loan, each monthly payment includes interest | | | | bonds or stock, you may earn more but you take a |
| and principal. After five years of traditional payments, | | | | risk. If you use it to reduce the balance of your |
| the balance of a $100,000 home would show as | | | | mortgage, you earn 6.25% with no risk at all.The tax |
| $93,054. A 10 year interest only loan requires only an | | | | saving on mortgage interest does not affect such |
| interest payment for the first ten years. After ten | | | | comparisons because you must pay taxes on interest |
| years of regular interest payments, the principal | | | | earnings. Suppose you are in the 39.1% tax bracket. |
| remains at $100,000. The loan is then re-amortized and | | | | Then your 6.25% mortgage costs only 3.81% after |
| regular payments are made."An interest-only home | | | | taxes, but a 4% CD yields only 2.44% after taxes. |
| loan may also be a good option for people who | | | | "The investment that is most advantageous before |
| expect to be in their homes for less than ten years. | | | | taxes is also most advantageous after taxes." Bottom |
| The average homeowner stays in their home | | | | line is that an interest only home equity loan is a smart |
| between five and seven years. As mentioned before, | | | | choice for homeowners with high market value (HMV) |
| home mortgage payments are mostly interest for the | | | | planning to sell before the interest only period expires. If |
| first years of the loan. Many homeowners like the | | | | you choose an interest only second mortgage as a |
| option of making interest only payments and using the | | | | financial strategy for increased earnings, make certain |
| extra money as they please- save for college tuition, | | | | the interest you earn elsewhere is worth the added |
| make home improvements, or buy a much-needed | | | | interest when the interest-only loan converts.Nick Rian |
| new car."If you plan on selling your home before the | | | | is an award-winning journalist whose journalism credits |
| interest only time period, no harm no foul. Keep in mind | | | | include awards from the Associated Press, Wisconsin |
| the interest during the interest only portion of the loan is | | | | Broadcaster's Association and The Milwaukee Press |
| fully deductible according to the IRS. But, remember | | | | Club. Today Nick publishes loan articles in San Diego |
| after the initial period of ten years the principal balance | | | | California. |
| has not changed. Some lenders up the interest on the | | | | |