mortgage agreement – We buy Negative Equity property

Interest-Only Mortgage

An interest-only mortgage is a type of mortgage wherein the borrow is only required to pay for the interest on the loan for a certain period of time. Then, the principal will still be repaid either through giving a lump sum at a certain date or through subsequent payments.

In interest-only mortgage, the borrower only pays for the interest through monthly payment for a fixed term. The term usually last for 5 to 7 years. Many take this loan and after paying, they refinance their home or give a lump sum payment to pay-off the principal loan that is left.

People who often take-out this loan are the borrowers who currently desires to afford more home, knows that the home they bought will be easily sold within the next few months, some who wants the initial payment for the mortgage to be significantly lower as they are still starting but are confident that they will be able to deal with the large amount of payments in the future and lastly, those who are really certain that they will be able to get a significantly higher return of investment somewhere else.

Advantages And Disadvantages

Like any other type of loan, the interest-only mortgage has its pros and cons. The advantages of Interest-only loan are the following:

The monthly payment terms are low during the whole term.

The burrower can actually buy a larger home later due to the higher qualifying loan amount.

You have free use of the money and you can invest it in to gain higher investment.

In the interest-only period, the amount you are paying monthly qualifies as tax-deductible.

Let us also look at the disadvantage of such mortgage terms:

It also increases the rising mortgage rate if it is an ARM.

People do not use their money smartly and often spend their extra money instead of putting it on a good investment.

At the end of the interest-only mortgage, many people are unable to pay for the principal amount which tends to increase gradually.

Many borrowers are not also disciplined enough to pay on time and tends to give extra payment towards the principal.

Some investments may not grow as quickly as it ought to be and ruins some payment plans.

The mortgaged home’s value may not appreciate as fast as they thought it would be.

It may cause “payment shock”, due to the significant increase on the principal payment which the borrower may have forgotten in time.

Is Interest-only Loan for You?

This loan scheme may have its risks but some may find it terms applicable in their current life and in their future plans. You should be able to fulfill the following qualities in order to apply for this type of loan:

You have a decent income which will surely increase as years go by.

The mortgaged home has a good equity and the borrower can actually use the money to pay investments and even principal payments.

Lastly, if your current job does not pay good and you want a flexibility of paying only the interest at this time then you may also consider this. If your income increases in the years to come, then you are good to go.

Interest-only loan is not as bad as it sounds but people often misuse it. If you have a good plan and strategy for your mortgage and you think you can actually put it out into action in the next coming years, then this might be a good choice for you. It is important for you to know and understand the difference between the actual benefits it brings and the temptation from having to pay a lower payment. Takeaway: Do not buy more than you can afford.

During this time, the whole world is suffering from the consequences that the COVID-19 virus has caused us. Many people were laid off from their jobs because a lot of businesses has closed down due to loss of income. People are having a hard time paying mortgages and earns a lot of debt because of this. So, what is mortgage write down and how can it potentially help the struggling homeowners?

Mortgage Write Down

So what should you know about mortgage write down? Mortgage write down happens when a borrower sends a letter to the lender with the intention of offering a viable alternative for their payment terms due to financial constraints. It usually occurs when a lender reduces the principal owed on one of its mortgage loans as a consideration for the financial difficulty that the borrower is experiencing.

Last May, many banks has set out details of Covid-19 mortgage holidays for the household who was hit pretty badly by the coronavirus making their finances unstable. This is designed by the banks for the borrowers to overcome the temporary income shortfall that no one predicted. A three-month extension for mortgage payments is enough of help for the people currently struggling financially.

Will the Bank Write Off your Debt?

With a debt write down or an informal arrangement with the bank, both the lender and the borrower will need to have an agreeable and affordable sum that will somewhat make it easier for the borrower to pay without compromising their credit value. Some people who are new to this can be quite skeptical about it and wonders why the bank would ever consider this agreement for the debt. Here are some reasons why the bank does so:

The bank does not want to repossess the property they already “sold” to the mortgager. Instead of repossessing and gaining an empty property again with no value or sells 20% less than their true value, they would rather talk it out with the borrower and have an agreeable amount. This will both be beneficial for the borrower, because they can continue paying for their mortgage, and the bank, for getting payments for the mortgaged property.
Having a hard time to make ends meet due to recent unexpected events is expected. If you’ve fallen into arrears and not able to pay your mortgage repayments, you can expect to receive letters from the lenders or the solicitors warning that they could take this matter to court which banks does not really want to do as it costs a lot of money.
Once the bank repossesses the mortgaged property, they cannot sell it again on its true market value. Because of this, they sell it on a discounted price significantly losing some money in the process.
If you and the bank didn’t get to reach an agreement, they can’t easily take back the mortgage property. They need to properly follow the protocol for this which not only costs a lot of money for the legal aspects but also takes a lot of time.

Struggling to Make Payments?

It is expected that a lot of people are having a hard time balancing their finances because of the recent events. Depending on your payment history, you may try if the lender will agree to:

Reduce your payments for a set period – show them a proof of your current income and expenses and how much money you can shell out for the mortgage. This will make the lender understand your case and might consider giving you a Mortgage write off.
You can also ask them to charge you only the interest for the time being, if you have a repayment mortgage. This usually ask you to pay for capital and interest.
Some banks already said that they are giving out payment holidays where you can apply.
Lastly, try to extend your mortgage term to reduce your payments. This is ideal for someone who is not sure whether their finances will be stable for the next coming months. The only downside of this is it also prolongs the payment and increases the interest.

There are many different ways to get help if you are having difficulties in paying your mortgage. If you have extra money or other source of income, you can try to reduce your expenses by re-checking your finances and continue paying for your mortgaged property.