Interest-only Mortgages Have Their PitfallsWritten by Charles Essmeier
Rising home prices, particularly on East and West coasts have put costs of home ownership seemingly beyond reach of many. And yet, home ownership is up nationwide, and percentage of Americans who own their homes is highest it has ever been. How is this possible?
There are more different types of mortgages available to home buyers than ever before, and one that is growing in popularity is interest-only mortgage. With an interest-only mortgage, buyer pays no principal for first few years of payments. The period of time varies, and is typically anywhere from one to five years. At that time, principal is added to mortgage payments and amount of payment increases. By keeping payments lower for first few years of mortgage, interest-only mortgage allows buyers to obtain a more expensive home than they otherwise might. The buyer’s income will probably increase over time, making it possible to afford higher payments that will come when principal is finally added to payments.
The downside to an interest-only mortgage is that no equity accrues in home if buyer isn’t paying any principal. For many Americans, equity in their home is their single largest financial asset, so taking out a mortgage
| | Minimum Credit Card Payments to RiseWritten by Charles Essmeier
For years, major credit card companies have allowed cardholders to make minimum payments of 2% of outstanding balances on their credit cards. Having customers pay minimum doesn’t reduce balance by very much, but when 18-30% interest rates that many credit cards charge is applied, result is a profitable ones for banks that issue credit cards. A balance of $1000 can take nine years to pay off at 20% interest if borrower only pays minimum due each month.
Clearly, it is not in best interests of consumers to pay minimum every month. But tens of thousands of Americans do just that, carrying huge balances and paying minimum every month. The average household now carries $10,000 in credit card debt; for many people, paying minimum is all they can manage. Due to changes in Federal law, several major credit card issuing banks will soon raise minimum amount due to 4%. This might seem like a small increase, but if you are already deep in debt and paying minimum amount, this could cause your payments to double. If you have a $10,000 balance and you are paying $200 per month, you will soon need to come up with $400 instead. Many people will
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