Also, Don T View Negative Amortization As A Dark Cloud In Terms Of Loan Programs

Category: Finance, Real Estate.

San Ramon, CA- - Federal Reserve Board Chairman, commented best when, Alan Greenspan he stated" Homeowners might have saved tens of thousands of dollars had they held Adjustable- Rate mortgages rather than Fixed rate mortgages during the past decade" . On average only 15% of your original principle balance will have been reduced.

If you own a 30year fixed mortgage, the first 10years of your payments will be applied towards paying down your mortgage interest. Considering the fact that most people will live in their homes approximately 5 to 7years, it makes since to plan what your goals will be before deciding on a loan program. Statistically speaking, if you have a family of four( 2 adults and 2 kids) , a loan balance of$ 400K with an interest rate of 5% (642% APR) , you ll need a Combined Yearly Income of$ 140, 000 just to Almost Break Even each month. Your decision could affect your financial planning for the next 10years. Actually you could have a loss of approximately$ 478 per month. These figures don t include any increases from your local county assessor s office, cost of living, car repair bills increases, cable or satellite services, etc, utilities. Here s the breakdown: Income$ 140K per year x 35% (tax bracket) = $91K per year( $7, 583 mo. ) Monthly Expenses: $2, 027( Principle+ Interest) + $417( taxes) + $117( home insurance) + $1K( 2 car payments) + $800( food) + $500( health insurance) + $2K( family of 4 living expenses) + $300( student loans) + $300( credit cards) + $600( childcare services) = $8, 061 Total Expenses.

Rather than considering shorter termed loans( with more favorable rates and payment options) , the customer will keep their existing loan( they like the current low rate) and take out a Home Equity Line of Credit. This good news creates a rising Prime Rate, which increases the payment rate on your Equity Line of Credit. Currently our economy is prospering. Some people are using their Equity Line of Credit accounts in order to maintain their current standard of living. This scenario has the possibility of a foreclosure waiting to happen. One of two things will eventually happen: a) The client will have to prematurely sell their home because they can t afford the payments or b) The client will maximize their existing equity and be forced to make higher payments.

In addition to establishing your goals and determining the right loan program, you should also understand the character of a real estate investor. Learn to use your equity as leverage in order to obtain greater wealth! Treat your property as an Investment and NOT a Retirement! Ask yourself what are you trying to accomplish with this transaction? Did you know there s a loan program available that may have a higher interest rate than you currently have, but provides you with a lower monthly payment( plus extra monthly cash- flow) , and no negative amortization? In our opinion, "rate shopping" is the old process for selecting a mortgage loan and it should be replaced with" payment shopping" . Also, don t view negative amortization as a dark cloud in terms of loan programs.

Copyright� 2005 2002- 2005 Brisco& Associates. Depending on how long you plan on staying in your home, this lower payment option could be a blessing in disguise for the true Real Estate Investor. All Rights Reserved

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