Title:
1% Mortgage Loans… What's The Catch?
Word Count:
857
Summary:
Learn the secrets you need to know in order to profit from a 1% mortgage
loan.
Keywords:
1% mortgage, option arm loan, pay option arm
Article Body:
While there are several different types of 1% mortgage loans, there are
really only two major keys to winning with a 1% mortgage loan.
The first key is to make sure the loan is set up correctly from the
beginning.
And the second is to make sure you are using the loan correctly to gain
the most benefit.
First, let’s talk about how the loan works. Then we’ll get into how to
set the loan up correctly so you can reap the financial rewards these
mortgage loans have to offer.
To start with, 1% mortgage loans have payment options. Each month when
you get your mortgage statement you will have the option to make a 30
year fixed payment, a 15 year fixed payment, an interest only payment and
a minimum payment at 1%.
Although you are given several payment options, you should only select
the 1% minimum payment.
Why?
Because if you wanted to make a 30 year fixed, 15 year fixed, or interest
only payment, you would be better off getting that type of loan.
Typically, these payments are higher with a payment option mortgage loan.
If you select the 1% minimum payment your first benefit will be a
significant monthly payment reduction. Your mortgage payment will likely
be cut in half. Of course, this is a pretty attractive first benefit for
most home owners.
To compound the effectiveness of selecting the 1% minimum payment you
should save what you save. For instance, let’s say you refinanced your
home with a 1% mortgage loan, paid off all your credit cards, and reduced
your monthly payment by $1,000 a month.
Now, if you save that $1,000 a month for yourself instead of giving it to
your creditors, you will have $60,000 in cash at the end of five years -
And that’s with a zero percent return.
Here’s the second benefit to selecting the 1% minimum payment option:
Tax savings.
If you make an interest only payment your mortgage balance will stay the
same. If you make a 1% minimum payment you are actually paying less than
interest only. Therefore, you are creating deferred interest which makes
your mortgage balance increase each month.
Before you freak out, keep in mind that deferred interest is mortgage
interest and is therefore tax deductible.
Let’s say your home is going up in value $2,000 a month. The 1% mortgage
loan will allow you to take a small piece of that appreciation, say $500
a month, and turn it into a tax deduction.
So you are taking a small piece of your equity each month and turning it
into a tax deduction. If you did not do this, all of your appreciation
would be locked up in equity.
Equity is terrific and is certainly one of the many benefits to home
ownership. But investing in equity will get you a zero percent return.
No one is going to cut you a check each month for the equity in your
home. As a matter of fact, if you wanted to get the equity out of your
home you would have to sell your home or get a loan. And you better
qualify or you will not be able to get a loan.
So why not take a small piece of your equity each month, turn it into a
tax deduction, and at the same time save $1,000 a month for your self?
You will still have plenty of equity but with a 1% mortgage loan you will
have cash AND equity.
If you do this for any length of time you will come out way further ahead
financially than if you did a regular 30 year fixed or an interest only
mortgage loan.
By the way, if the deferred interest is a concern, try making bi-weekly
payments. Making a bi-weekly payment will reduce, and in some cases
eliminate the deferred interest all together. Which means your mortgage
balance would not increase.
How to set the loan up correctly:
1) The 1% payment option on these loans is only available for the first
five years. But you could actually keep one of these loans for 30 or 40
years. If you select a 40 year loan your monthly payment will be lower
but the payment options will not last for five years. The name of the
game is to keep the 1% payment for as long as possible. So get a 30 year
amortization.
2) The 30 year, 15 year and interest only payments are tied to an index.
Select a slower moving index like the MTA (Monthly Treasury Average)
instead of a faster moving index like the Libor (London Inter-Bank
Offered Rate).
So how can you lose with a 1% mortgage loan?
Answer- depreciation.
If homes in your area are rapidly going down in value, deferred interest
could cause you to become upside down in the home.
But if your area is experiencing a 3% to 5% rate of appreciation and you
save what you save by making the minimum payment, a 1% mortgage loan can
have an incredibly positive impact on your financial future.
For more information about 1% mortgage loans and other mortgage related
topics, please visit:
http://Mortgage-Training.Mortgage-Leads-Generator.com
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