The interest only mortgage loan has rarely been a so widely considered or highly risky option. There are benefits to interest only mortgages of course, mainly due to the comparatively manageable monthly repayments of just the mortgage interest only. This is something that has helped numerous people get a foot on the property ladder who otherwise may not have had the necessary means. Unfortunately it has also lead to unprecedented numbers of repossessions when taken out due the peak of the house prices boom. Such devastating scenes have become almost commonplace in the last few years as the economy has reeled from the recent financial banking crisis.
The last decade has brought with it a host of traumatic world events that have shaken people’s perceptions about things they could once take for granted. The new century has seen a frightening upward surge in terrorism, and the cost of war, both human and financial, has been higher than the current generation has ever experienced. Concerns over the environment and the costs of reducing C02 emissions has become front page news, and the cataclysmic scale of disasters at the hands of nature itself have shocked the entire world to its core at how fragile we in fact are.
Against this background has come what is probably the most serious financial crisis since the Great Depression. The good times were so good it would appear that many in the City, and positions of influence, neglected to look ahead to what were clearly changing times. When Gordon Gecko proclaimed “greed is good” the nineteen eighties were in full swing. The property market was in a rich vein of form and no one was expecting any bubbles to burst, indeed it had always traditionally been considered the safest investment going, and interest only mortgage loans that could enable more people to get on the property ladder and make some money were at worst a calculated risk.
A decade on from the heydays of the eighties things were still going well for property investment, perhaps in hindsight a little too well. When potential new home buyers cannot even afford interest only mortgage rates current levels, as became increasingly common, then it becomes clear that prices may be outstripping demand and some form of correction is likely. A much needed correction was delayed by the eagerness of lenders to capitalize on the situation and lend irresponsibly, regardless of the risk and undoubtedly the product of their own greed.
Now we are wiser. The bubble has most definitely burst and we are left counting the cost which has reached the trillions and affected the worldwide economy like never before. There has indeed been a correction in house prices, to the detriment of many unlucky homeowners, but whether the correction is complete and house prices will again reach the dizzy heights of a decade ago is still uncertain. The current rises in unemployment in the UK and United States would surely indicate that many people who would otherwise be considering buying a house will need to remain in rented accommodation, a decrease in demand which you could reasonably expect to damage house prices further.
A drop in demand in one area has been in part replaced by rise in another as the buy to let sector has been growing impressively. This positive effect should not be taken as the sign that everything is back to normal however tempting it might be. Many serious challenges lie ahead for the global economy and house prices are likely to be susceptible to any failures to adequately meet these challenges.
Frightening portents on the world stage aside, life continues on, and people still need somewhere to live. In these cash strapped times taking the interest only mortgage loan option can make the difference between being able to afford to buy a home or not, and despite the uncertainty of the times and house prices in particular, there are still profitable investments out there.
An interest mortgage only really works if you can guarantee making the repayment. While the monthly repayments may be very manageable interest only mortgage loans require you to pay the full amount due at the end of the loan period. If you have lost money on your home during this time the financial cost of this could be crippling.
Another factor to consider carefully is the length of the loan. When considering this type of loan it is preferable if you can take it out over a shorter term. Over a more traditional mortgage term like twenty or thirty years, it is impossible to predict what outside influences, like the state of the economy or changes in your personal circumstances, may affect your ability to repay the loan.
House prices are also equally difficult to predict the longer the period of time in question. With a shorter loan period it can be possible to more confidently predict how your investment might perform, and reduces the risk, not to mention the cost, of the overall loan.
There is a great deal of competition when it comes to mortgage lending but these days making comparisons is relatively easy to do in a fairly short space of time thanks to the internet. If you are looking for a mortgage rate calculator then the Council of Mortgage Lenders are a good place to start. If it is an interest only mortgage calculator you need then Fair Investment have a free tool suited to this purpose.
Mortgage interest only loans can provide a great deal of financial flexibility, and for those with portfolio of properties, perhaps used as rental accommodation, the benefits of improved cash flow outweigh the risks. For many private homeowners the short term benefit can be insufficient reason to acquire this level of debt as it is difficult to accurately predict how healthy their finances might be at the end of the loan term. Banks can and do repossess homes from people who have defaulted on their mortgage and the reality of this is something to consider carefully before taking out this type of loan.
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