Interest Only Mortgage versus Balloon Notes

Author: Tony Robinson

You would think the interest only mortgage and the balloon have nothing in common, but they do; they're closer than the FRM and the ARM in terms of comparative benefits. To fully appreciate the balloon note option, since for many years it's taken the brunt of the ""bad product"" review; let's compare it to the interest only mortgage.

The old balloon note, long the product to be avoided, has suddenly become a better friend, even to the more reserved bank mortgage officers. In utilizing the balloon note option, a borrower makes amortized principal and interest payments on the note, as if it were a 30 year note; the catch: if it's a 5 year balloon, the entire balance of the unpaid principal is due at the end of five years, if it's a 10 year balloon, then the entire unpaid balance is due at the end of 10 years. The unsavory aspect of these types of notes has always been the huge payment that was due at the end of a specified amount of time. If the buyer isn't able to find financing at the end of the 5 or 10 year term, or if the property has dropped in value, it's a great way to be bankrupt, or have the property foreclosed on. If you intend to sell your home within a 5 year period, the balloon note option is an excellent alternative that offers a lower monthly payment. But, suppose you don't sell the home? Well you either must come up with the balance of the note, or find an alternative mortgage product. The biggest problem here occurs as you try to deal with the variables in the situation, when the balloon note matures.

When the note matures, if the interest rates are high, or if the real estate market is experiencing a slump, you may be forced to accept a higher interest rate, or produce a very big down payment with a new note. Either solution means that the conditions aren't favorable for the homeowner. But is this so very different from the interest only mortgages?

The interest only mortgages are interest only for a specific term of time; then the principal and interest become due on the note, at a much higher monthly rate. The only difference here is that the lending institution is locked into a 20 or 30 year note. But the borrower is no better off, if he or she cannot afford the payments at the higher level, there still exists a greater potential for bankruptcy or foreclosure.

Thanks to the booming real estate market, and the expansion of the mortgage product market, the increase in purchasing power has enabled many prospective homeowners to actually make a dream a reality. However at some point, the market will cease to boom, and the mortgage market will cease to expand. Will the consumer that purchased the interest only mortgage or the balloon note, be able to afford the consequences, should the home suddenly not be worth the original loan amount? Let's hope for the sake of the unwary homeowner, this is a situation we do not soon encounter. And, for the most part, I don't believe we will. Thanks to the natural disasters along the gulf coast, and the continued demand for real estate, building materials, and existing housing, the prices we're currently experiencing, along with the growth we've seen for the past couple of years, should continue.

There are other, more stable loan products available, but these products don't provide the kind of flexibility for the mortgage lender or the borrower, that the interest only mortgages and balloon notes do. They also don't pose the risk these two loans. The interest rates, however, are very competitive on the interest only and balloon, and I don't' look for the general public to decide in favor of safety over savings. After all, nothing ventured, nothing gained.

Now, you see the old balloon note looks a little sharper than he did before the interest only mortgage moved in. At least with the balloon note a part of the monies paid each month are applied to the principal balance. With the interest only mortgage, all of the payment monies are applied to the interest, so at the end of the interest only term, you still owe as much principal as you did in the beginning. It would seem to me, it's six of one, half a dozen of the other. The borrower really isn't making any progress, either way.

About the author: Tony Robinson is a Real Estate Investor, Webmaster and International Author. Visit http://www.ezy-mortgage.com/ for his tips on mortgages.

Mortgage Refinance After Bankruptcy!

Author: Elizabeth Grant

If you are considering remortgaging your home after Bankruptcy, there are many factors to consider in the decision making process. Here we discuss some of the essentials topics that will enable you to decide if releasing equity from your home is your best option.

Becoming bankrupt

If you are in a bad debt situation and are thinking of declaring yourself bankrupt, then the first thing you should do is get legal and financial advice to make sure that this is your best option. Don't leap ahead to thinking about refinancing after bankruptcy if you haven't even decided if bankruptcy is the best thing for you.

Once you have taken the decision to become bankrupt, or you have been declared bankrupt by your creditors, you will need to take some time to deal with the immediate consequences of bankruptcy and work out your next moves. Think about what you want to achieve in the future. If your house has had to be sold, or part-sold in order to clear your debts, then you may want to look into mortgage refinance after bankruptcy so that you can see what your options are.

My options

If you have been declared bankrupt, but your period of bankruptcy has ended because all your debts have been cleared, you can look at your options for the future. These might include:

-Employment. If you were self-employed before bankruptcy, then you may want to consider being an employee. This can remove the stress of self-employed earnings and can also put you in a better position when it comes to applying for loans or mortgage refinance after bankruptcy.

-Debt. The experience of being declared bankrupt should have convinced you to take a different attitude to debt, and make sound financial plans, with help and advice where needed, to ensure that you don't run into such big problems again.

-Restrictions. Expect some restrictions to be placed on you, even though you have been discharged from bankruptcy. Most credit applications will ask if you have ever been declared bankrupt and you must answer honestly. Your chances of getting a loan at standard rates may be affected by your bankruptcy for some time.

-Advice. Even after your period of bankruptcy is over, it is worth retaining some of the advisers you had to use. Not only will they know your financial background, but they should be well-placed to advise you in the future.

Getting Advice

If you are thinking about mortgage refinance after bankruptcy, then all the above considerations apply to you. A mortgage lender will want to know that you are serious about not returning to a position of bad debt and they will also be reassured if you are in full or part-time employment. There will be restrictions placed on you because of your credit history and you will need professional mortgage advice to ensure that you get the best mortgage product for your needs. If you don't already have a mortgage adviser, then talk to an experienced mortgage broker who can talk you through the mortgage refinance products that are available to you, and advise you on how to approach your application to get the best results. Whilst getting mortgage refinance after bankruptcy is a good idea, because it can give you access to lower interest rates than some other mortgage deals, you will need to take advice to make sure it's the right route at the right time.

About the author: Elizabeth Grant writes exclusively for The Mortgage Broker specialist websites. To read more of Elizabeth's articles on Adverse Credit Mortgages please visit the Adverse Mortgage Centre .

Mortgage Companies: Specialty Guys

Author: Tony Robinson

Let's talk about the specialty guys, the mortgage interest companies. Why do they exist in what do they do for the average consumer? Actually a lot. Mortgage interest companies exist for the pure and simple reason of originating mortgage loans. If mortgage loans are your specialty then quite naturally you would assume you're very good at what you do. And most of the mortgage companies are very good at what they do. So much so, that real estate prices and mortgage loan products have seen a threefold increase. What does this mean for the consumer and what does this say about our mortgage companies?

What this means for the consumer is that now there are being offered a wide range of the affordable, and quite accommodating loan products. What does this say about our mortgage companies? That today more than ever mortgage companies are creative with their efforts to accommodate a growing and varied range of customers. Mortgage companies offer mortgage loans that range from interest only, 1% interest only, to the standard fixed rate mortgage loan product. This article will take a moment to examine the mortgage companies and the mortgage products offered by these mortgage companies.

If you need to apply for a mortgage today, you only have to go online to find your nearest mortgage company and a detailed list of the mortgage products they provide. Even if you don't want to complete the application online, you are supplied with all the necessary information to make an informed and educated mortgage decision without ever leaving the comfort of your home. Almost all of the mortgage companies in existence today make use of the online environment to advertise their business and their business products. But, this is not the only avenue for advertising the mortgage companies will use. Many of the mortgage companies today use advertising venues via the newspaper billboards and radio. By far the largest vehicle of advertising used by the mortgage companies today is through the use of the television; it is via the television that you will most often hear about mortgage-company's and the mortgage products offered.

Mortgage companies compete for your business by offering lower then standard interest rates, and extremely unusual by traditional lending standards, mortgage products. The increase in the number of interest-only loan products is a testament to the use of non- traditional products in order to increase customer base. However, the consumer is a winner as far as the interest rate expense because many of the specialized mortgage companies can offer a lower interest rate than your local and traditional lending companies, such as banks. Due to the specialty of the mortgage company and the mortgage product interest rates are sometimes a full 2 to 3% lower then the rate offered through the traditional lending institution.

Factor in the advent of the online mortgage companies, such as Quicken Loans, and you have an even lower interest rate offering due to a lower overhead expense. What role has the online mortgage company played in lowering interest rates, and pulling from the traditional and physical-existence mortgage companies? The influence has been quite great; many consumers have shopped the online environment in order to obtain the low interest rates offered. Companies such as Quicken and Ditech have experienced phenomenal growth thanks to the online mortgage company existence and television advertising.

The government has greatly encouraged the growth and competitive nature of the mortgage company industry through the use of government programs such as Fannie Mae and Freddie Mac, and has empowered the mortgage companies with a means to sell existing mortgages in order to originate new ones. Apparently, the government wishes to encourage the success of the specialty companies with the specialty rates!

I believe the existence of mortgage companies, the ever-increasing range of mortgage products and a continued increase a real estate prices has helped to contribute to the stabilization of an extremely low interest rate, which in turn has fueled the growth of the mortgage companies and the range of products offered. As you can see, this is a market of interconnected affectation and the consumer seems to be the greatest benefactor. So carry on specialty guy!

About the author: Tony Robinson is a Real Estate Investor, Webmaster and International Author. Visit http://www.ezy-mortgage.com/ for his tips on mortgages.