Interest-Only Mortgages
A number of home mortgage providers have begun advertising low-payment mortgages touting savings of up to 40% on monthly payments over conventional mortgages. Their ads display the fact that the mortgages are interest-only, but they voice over, more often than not, does not.
These mortgages are of no value to anyone wanting to refinance or buy their first home. An interest-only mortgage is lower than a conventional mortgage because a conventional mortgage monthly payment consists of an interest payment and a payment against the outstanding balance. An interest-only mortgage will never be paid off no matter how long the home owner continues making payments as the original mortgage amount will never decrease. Interest-only mortgages are a boon for the mortgage company because the provide a continuous stream of interest payments and the amount of the interest paid each month will never over the life of the mortgage (unlike a conventional mortgage where interest payments decrease and the outstanding balance payment increases over time).
Both the states and the federal government should pass laws requiring home mortgage providers advertising interest-only mortgages to clearly state that the mortgage will never be paid off unless the home owner includes a principal payment along with each month's interest payment. Requiring up-front advertising of the never ending feature of interest-only mortgages would in all likelihood result in home mortgage providers end the offering of these "gotcha" mortgages which would be a good thing for all current or would-be homeowners.
4/9/05 ( 370 )
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