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Interest Only Loans Buy 20% More Home With Maximum Interest Deductibility
A lot of the press today is states that interest only loans are “bad” and that they should be avoided. Instead, let’s examine why you might want to get an interest only loan. Once you understand how the typical product works, you can make your own educated decision. Think of your mortgage as a financial instrument that needs to be managed and integrated with your other financial goals.
A conservative example of an interest only mortgage product allows for ten years of “interest only payments”. The repayment period of the loan is traditionally 30 years. The interest rate is fixed during the entire 30 year repayment period. This loan offered through lenders selling to Fannie Mae. Fannie Mae is a government sponsored entity. They are very large and significant purchaser of loans, so you shouldn’t have too much trouble finding this loan. Most mortgage brokers will be able to offer it to you. This loan is one of our favorites-Minnesota mortgage broker Venture Development-http://www.ventureloanapp.com/interest_only.html
This loan product allows the first ten of the thirty years to have payments based on just repayment of the interest or “interest only”. After the initial ten year period, the outstanding remaining balance, often the same as it was in the beginning, needs to be amortized and paid off. You now have a 20 year loan, which represents the remaining time left on the mortgage. The interest rate remains the same as the initial rate. There was NO change in the interest rate. There is no interest rate risk. The only variable that changes is the amortization period, having gone from 30 to now 20 years. If you want interest only payments again, simply refinance. In fact, there are no prepayment penalties to pay off this loan.
How can an interest only mortgage be a good thing? Your mortgage payments are less than a traditional amortizing loan. The actual payment differential is about $100 per 100K borrowed. This means you can get the home you want for a lower payment. This allows you to allocate the “savings in payments” into other places. One good place might be your retirement plan. For example, maybe you are not taking advantage of a retirement plan at work or the employer match. Salary deferred into a retirement plan is generally on a pre-tax basis. This allows you to pick up the differential in dollars that would have been lost to taxes. Instead these tax deferred dollars are compounding in your retirement plan. If you are able to pick up the employer match where you hadn’t before, you effectively are earning up to 100% on your deferred dollar, assuming the match is dollar for dollar.
Interest only payments enable you to buy a larger home with the payment you find comfortable. This generally translates into 20% more of a home for the same monthly payment. This extra 20% of buying power might allow you to “buy up” to what you really want. Getting more of what you need in a home will allow you to remain in that home longer and build more equity. Moving often may strip you of a lot of your potential equity due to the costs involved in buying and selling a home.
You can’t deduct principal. At the end of the year, your lender will send you a 1098. This form represents the amount of interest that you’ve paid in the previous year. This is what you may be able to deduct on your taxes. Principal repayment is never deductible and may actually accelerate the loss of your “tax deduction i.e. mortgage interest” by reducing the outstanding mortgage balance from which interest is calculated.
You may be able to earn a higher rate on your invested funds than the rate you are able to borrow money at for a mortgage. This is mortgage interest rate arbitrage. This is why you might want to borrow as large a mortgage as you feel comfortable maintaining and invest your equity somewhere else. Following this strategy, you are doing the same things that banks and insurance companies participate in. Last time I looked, it worked pretty well for them.
Your equity due to appreciation grows the same way regardless of how you finance a home. Equity growth is based on the appreciation of the underlying property. Consider this: if you can buy more of a home with an interest only loan, and if all homes appreciate by the same percentage, then you will gain more equity from the home that initially costs more. The equity that you are building through amortization by paying down on a mortgage is really just a “forced” savings plan. It may be possible to take these payment savings that you pay into the “forced” savings plan and instead invest them into some alternative investment that will appreciate at a higher rate. If you should want your home paid off or paid down in the future, simply liquidate this alternative investment and apply it to your outstanding mortgage balance.
What are the negatives? You might be able to argue the other side of the advantages I’ve outlined, but I think you would be remiss. For example, you could argue that there are no alternative investments that offer a higher rate than the net rate you’re paying on your mortgage based on the risk you are willing to take. This might be the case for the most conservative. If that’s the case, I still think the other advantages provide enough reasons to consider an interest only loan. To be objective there might be one risk to consider. If you don’t think you can make the mortgage payment after the interest only period and you feel that in the future you might not be able to refinance or sell your home, for whatever reason, then you should stick with a traditional 30 year fixed conventional loan.
Understanding Interest Only Mortgage Payments
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A huge part of the American dream today is having a home of your own. However, with the high prices of buying a home, that dream home may seem like it is out of your grasp. Well, you'll find that with mortgages that allow you to make interest only payments, you can make your dream of owning your own home a reality. One way that you can make the mortgage you need more affordable is to get an interest only home mortgage from your lender. This often allows you to only have to pay the interest on the loan over the first few years that you have the loan. Just paying the interest only payment can be a huge help and can help you to buy the home that you have been dreaming of for so long.
Whether you are purchasing a new home or if you are refinancing your home, you may want to consider going with an interest only loan. Some of these loans come with adjustable rates, while others are fixed. No doubt you'll want to go with the option that fits your needs the best. However, if you are considering going with interest only mortgage payment, there are some things that you may end up facing.
First of all, you can end up dealing with payment shock. This means that you may have payments that suddenly double or even go higher when the period of interest only payments is done. Also, the interest only mortgage rates could go up, making you pay more money as well. Another problem that can occur is negative amortization, which means that all the interest may not be covered. The interest that you haven't paid may be added on to the mortgage so that you own more at this point than you started out with. So, while you'll definitely find that interest only mortgages are great options, it's important to understand the risks and the terms of the loan as well.
So, you may be wondering, what exactly is an interest only mortgage payment. Well, when it comes to traditional mortgages, you pay back each month some of the interest and some of the money borrowed. Over the term of the mortgage, the principal decreases. However, with an interest only payment plan, you only end up paying the interest on the loan for a certain number of years. After this period is over, then you have to pay on the interest and the principal.
Usually you'll find that mortgages that offer you the interest only option come with adjustable interest only mortgage rates. This means that the interest rates can change over the term of your loan, meaning that your payments can also change as well. This can occur each month or it can occur every few years, which fully depends on the loan that you have. Most of the time the interest only payment period lasts fro anywhere between three years and ten years. After this period is over, then the payments you pay each month are going to increase, since you'll be paying interest as well as paying back the principal as well.
One option that you may have when you are trying to finance your home is a payment option ARM. This is a special adjustable rate mortgage that gives you several different payments options that you can choose from every month. You can choose to pay an interest only payment, you can pay a limited payment, which means you may not even be paying off the interest each month. The last payment option is to pay a combination of the interest and a payment on the principal as well.
Usually you'll find that the interest only mortgage rates are quite low for the first few months. However, after the few months have gone by, you may find that the rates go up. If the payments that you pay in the first year of your loan doesn't cover all of the interest that is due, then this interest that has not been paid can be added on to the mortgage.
When you are looking for an interest only mortgage payment plan, there are a variety of things that you will want to consider. First of all, you need to make sure that you find out about the terms of the loans you are considering before you decide on one for you. Find out about the options that you have and even try to get some competition going so that you can get the best possible deal. Make sure that you will be able to afford the payments later in life, even when you begin to pay more than the interest only.
Minneapolis: A Clean and Green City
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If there is one thing that Minneapolis should be famous for it is the city’s dedication to maintaining its reputation as among the greenest cities in the State of Minnesota. True enough, Minneapolis has proven it is hell-bent in protecting the environment through the Minneapolis GreenPrint which is its guide to attaining sustainable development.
The Minneapolis GreenPrint is a framework based on ten healthy environment indicators. An annual GreenPrint Report is submitted to the City Council to measure the environmental interventions being done by the city each year which can include street sweeping, installation of solar panels on city building roofs and other private sector initiatives.
The environmental efforts of Minneapolis go a long way considering that it is Minnesota State’s city and Hennepin County’s county seat. With St. Paul, it forms the now-famous Twin Cities, and has 3.2 million residents as of the last Census.
Employee relocation and corporate relocation usually targets Minneapolis due to its clean and healthy environment. With twenty lakes, creeks and lots of waterfalls, Minneapolis is a city that is abundant in water. It is thus no surprise that its name is taken from the Dakota word “mni” for water and polis for city, to mean water city. In fact, Minneapolis is also called the City of Lakes.
History and City Profile
The history of Minneapolis is largely tied to water primarily because of the city’s physical make up. Minneapolis lies on an aquifer and so the city is serious in managing its watershed areas.
Business in the city is mostly hinged on finance, trucking services, industry and health services. Several companies engage in milling, chemical and agricultural products, food processing and similar businesses. It is home to some of America’s Top Companies including Xcel Energy, Target Corporation, Ameriprise Financial and Thrivent Financial for Lutherans, Donaldson Company, PepsiAmericas and US Bancorp.
Minneapolis does not however just boast of a clean environment and good water sources but it also boasts of a holistic development that made it to the Kiplinger survey of Smart Places to Live in 2006 (it was ranked number 2 together with St. Paul). It has also been included in the list of Seven Cool Places for Young Professionals and was chosen as the United States’ Top Tech City survey by Popular Science in 1995.
The city, along with St. Paul’s $145.8 billion gross state product accounts for 63.8% of the State of Minnesota’s gross state product. The year 2000 was a bad year for the area as it experienced a recession but it has bounced back in 2005 with a growth in personal income by 3.8%.
Culture and the Arts
If you are thinking of relocating in an area where you can expose your family to culture and the arts then Minneapolis should be your best bet. Theater is big here starting with the Guthrie Theater which was designed by 2008 Pritzker Prize Winner Jean Nouvel.
Minneapolis is a haven for art and the artists. It has been ranked the most literate city in America and this can be one big reason for relocating in the area especially if you have children or you have a great interest in culture and the arts. It is home to the largest literary and book center in the country known as Open Book. It boasts of the Loft Literary Center which is a venue for contemporary and traditional arts and crafts.
If you are offering a relocation package for your employees then make sure you mention the existence of the Minneapolis Institute of the Arts, the city’s largest museum with over a hundred thousand collection of art and other historical items.
The most famous contribution of Minneapolis to the American music industry is Prince. This world-famous pop icon is a product of the Minneapolis Public Schools.
Sports
Minnesota relocation can become more exciting with the knowledge that sports means a lot to its residents. Among the teams that raised the flag of Minneapolis are the Minneapolis Millers (known for contributing 15 baseball players to the Baseball Hall of Fame), the Minneapolis Lakers basketball team (with six championships on its belt in all the three leagues) and the NWA Minneapolis Boxing & Wrestling Club (now known as the American Wrestling Association).
The Minnesota Vikings, the Minnesota Twins (won the 1987 and 1991 World Series), the Minnesota Lynx WNBA, the Minnesota Wild! hockey team and the National Lacrosse League team Minnesota Swarm are just some of the teams that make up the vibrant sports atmosphere of Minneapolis.
Employee relocation in Minneapolis is very appealing to those who have families considering the city’s well-designed park system, considered the best in America in terms of design, financing and maintenance. Residents of Minneapolis have to thanks Theodore Wirth for this.
Housing
There are a variety of Minneapolis relocation package and if you want to find out about this you can get the services of a relocation specialist who will be able to provide you with important relocation information to help you decide if moving to Minneapolis is indeed the right decision.
Minneapolis real estate can offer you lots possibilities and you can choose from any of the real estate listings in the city including single family residences, single story homes, condominiums, duplex, or lakeshore properties. You can even purchase or mortgage land and build your own house. However, it would also be ideal to look at the latest foreclosure listings as they may be new homes on the list that are quite affordable.
Still unsure about moving to Minneapolis? Think of how clean the air you are going to breathe once your family relocates in the city. Think of the artistic and cultural exposure your family is going to get. Think of how important quality of life is and think of Minneapolis.
St. Paul: A Capital Center for the Arts
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St. Paul is famous not only for being the other half of the Twin Cities (the other part being Minneapolis) but also for being America’s most livable city. The city will however be placed in the world map once it hosts the Republican National Convention in September 2008.
Politics aside, St, Paul aims to make life and the environment better for its residents through the promotion of commuting alternatives in the city specifically the Freewheelin bike sharing program during the convention where a thousand bikes will be lent to program participants, 75 of which will be left to the city after the event.
More popularly known as the capital of the State of Minnesota, St. Paul is Minnesota’s most densely populated county. Together with Minneapolis, it is the 15th largest area in the United States with 3.5 million residents as of the last Census.
History
St. Paul used to be a tavern that developed into a trading outpost known as Pig’s Eye in honor of Pierre Parrant, the man who started it all. Parrant was blind in one eye. As the city became the melting pot of European explorers, American soldiers and Native Americans, it ultimately became Minnesota’s transportation and trading center until it became a city in 1858.
City and Community Profile
St. Paulites live in a city that is further divided into 17 City Districts including Saint Anthony Park, Merriam Park, Highland Park, Battle Creek, Como Park, Dayton's Bluff, Downtown, Greater East Side, Macalester-Groveland, North End, Payne-Phalen, Summit Hill, Summit-University, Hamline-Midway Thomas-Dale, West Seventh and West Side.
St. Paul has a population of 287,151 people consisting of 112, 109 households. The city is home to 115,713 housing units occupied by 60,987 families. Majority or 67.02% of the residents of the city are Whites followed by Asian (12.36%), African Americans (11.71%), Native Americans (1.13%) and the rest are Pacific Islanders and those from other races. St. Paul is home the Mexican population, the reason why a Mexican consulate has been established in the area.
St. Paul has a young population with an average age of 31 years. The elderly or those aged 65 years and over make up only 10.3% of the total population while those under 18 years of age make up 27.1% of the total population.
Business
As part of the Twin Cities, St. Paul is an ideal site for business and this is evident with the number of major corporations that have made the city their home including St. Jude Medical, Minnesota Life, Lawson Software, Travelers, 3M and Gander Mountain.
City Attractions
St. Paul is an exciting destination for those who seek entertainment and those planning to relocate in the city will get their share of fun and excitement. One of the attractions here, which was born out of a criticism the city got from a New York reporter who compared the city to Siberia during winter is the Saint Paul Winter Carnival. Minnesota Lake is a fitting icon for the Winter Festival considering that the ice formations in the lake were the source of the Festival ice castle. Among the Festival attractions include ice horse racing and bobsledding. Another attraction is the appearance of the Royal Family during the festival.
The St. Paul historic Landmark Center in Rice Park also serves as a time capsule and a memorial to that time when the building served as a post office and Federal Court House. The pink granite building with that red tile roof is now an arts and culture and an information center. Infamous people like Baby Face Nelson and John Dillinger were tried in the same building when it was still used as a court house.
The Wabasha Street Caves is another historical site having been home to mobsters before it was converted into a venue for band music. Nothing however beats the 12-day Minnesota State Fair, known as United State’s largest state fair when it comes to the average attendance on a daily basis. If you want the best of Minnesota livestock, cooking and art then go to the fair.
Famous Citizens
St. Paul is the birthplace and resident of many famous people including world-famous author F. Scott Fitzgerald (who was born here), Peanuts creator Charles M. Schultz (who was born in Minneapolis but was a resident of St. Paul from infancy), journalist and Civil rights activist Roy Wilkins (who grew here), playwright August Wilson (who lived here from 1978 to 1990), photographer John Vachon and painter LeRoy Neiman.
Housing
Most executive relocation and corporate relocation package focus on St. Paul because of the many housing opportunities in the city. You can choose to invest in real estate properties like condominiums, apartments, house for sale or get a good real estate agent to look among the mortgaged houses facing foreclosure proceedings for a good buy. You can also avail of the Minnesota Housing Mortgage Loan Programs targeted towards first time Minnesota home buyers or those with moderate incomes. To be eligible for the Minnesota Housing First-Time Home Buyer Loan make sure you are a first time home buyer, you have acceptable credit and that you meet the requirements for income limits and the home cost limits.
It is easy to get a housing mortgage in St. Paul and you can get some help from reputed real estate agents who will assist you in finding the best mortgage deals in town. A good relocation package in one of the best cities in Minnesota like St. Paul is more than enough incentive for any employee who is being offered an employee relocation option. Living in St. Paul can be a mixture of the urban and laidback lifestyle because while the city is the center of trade and commerce as part f the Twin Cities, the local government has also managed to maintain the city’s environs quiet and favourable to building families.
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