Talk-In Real Estate

Talk-In Real Estate

Ir}terest Only Loans? The price of Real Estate ha> been going through the ceiling these Jays and 1 have had several people ask me about interest only loans. The mam reason that people are attracted to interest only loans i> that they can qualify to buy a higher priced home by e not including the principle payment along with the interest that accrues in a normal mortgage payment or they plan to turn the property over and resell it very quickly and don’t feel a need to pay oft the loan quickly. This may work just fine so long as properties are appreciating rapidly like they have over the last couple of years. Since the payments are less on an interest only loan, people can quality- for a larger loan amount and can therefore afford a bigger, more expensive home. New homebuyers are often surprised that the new home they just moved into has increased in value by 20-25% while the house was being built. So why pay any principle? You’re building so much equity you really don’t need to pay principle. Right? It all sounds gixxl in theory- hut what happens if things start going south like they did in the late 1980’s. Many of the young people today have not experienced a down turn in the market such as the savings and loan fiasco of the 1980’s. Especially hard hit during that time was the southwest when people were walking away from their homes and letting the Banks have them back. Real Estate values went down. The economy slowed down and people simply couldn’t make the payments .md they could not sell their houses tor what they paid for them. Will that happen again? It’s hard to say. Hopefully not, but you know the old saying, “Those who do not learn from their mistakes in the past are prone to repeat them.” Now should you get an interest only loan? I think it depends on your circumstances. If you are a betting persomand you are buying short term (a few years) and you feel fairly confident that prices and home values will continue to rise, then an interest only loan is probably the loan for you. On the other hand, if you are cautious v and conservative and looking to stay in your home * r investment for a long time, I would recommend a traditional principle and interest mortgage payment. It is sort of like a forced savings account where you are gradually paying down your debt and slowly building equity. If you are thinking of buying or selling property, Please contact me. Sam Snead, broker gri, crs, crb ■Locally owned and managed Your Hometoxrn Realtors 540-987-9243 • www.sairisneadreaIty.oom