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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Thursday, May 04, 2006

More Mortgage Loans

Per yesterday's conversation on mortgage some untraditional mortgage loan options do not always end up well. They serve a purpose, but usually you have to sell your property within 5 years. After 5-10 years things can change dramatically.

For example, an Interest Only loan option can hurt you financially because with this option you are paying no principle on the loan--just interest. So after five years you will begin to have to pay back your loan, but now only have 25 years to do it. A piggy back loan can hurt you financially as well because the second loan is often connected to the prime rate. So if the prime rate rises so does the interest on your second mortgage. Sometimes your second mortgage can be set up so you pay interest only. This can be disasterous when the period of interest only is over. A balloon payment comes due and all of the sudden you owe a lot of money.

So watch out for mortgage brokers and lenders.

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