BAD CREDIT CASH LOANS AND FINANCING: Unique Content Article: 1 Percent Property Finance Mortgages

1 Percent Property Finance Mortgages - What Is The Actual Catch?

by Richard Russell

While there are many various kinds of 1% mortgage loans, you'll find really only two major keys to winning with a 1% mortgage loan.

The very first key is to ensure the loan is set up properly right from the start.

And the second reason is to make sure you are using the loan correctly to gain the most benefit.

First, let's talk about the way the loan works. Then we will get into how to set the loan up properly to help you reap the financial benefits these mortgage loans have to offer.

To begin with, 1% mortgage loans have payment options. Each month when you are getting your mortgage statement you will have the option to pay a 30 year fixed payment, a 15 year fixed payment, an interest only payment or a minimum payment at 1%.

Even though you are given several payment options, you ought to only select the 1% minimum payment.

Why? If you wanted to create a 30 year fixed, 15 year fixed, or interest only payment, you'd be better off getting that form of loan. Typically, these payments are higher when compared to a payment option mortgage loan.

If you choose the 1% minimum payment your first benefit will be a significant monthly payment reduction. Your mortgage payment will likely be cut in half. Of course, this is a pretty attractive first benefit for many home owners.

To compound the usefulness of selecting the 1% minimum payment you should save what you save. As an example, let's say you refinanced your house with a 1% mortgage loan, paid off all your credit cards, and decreased your monthly payment by $1,000 a month.

At this moment, if you save that $1,000 a month for yourself instead of passing it on to your creditors, you will have $60,000 in cash at the end of five years - And that's with a zero percent return.

Here's the next benefit to selecting the 1% minimum payment alternative:

Tax savings. If you make an interest only payment your mortgage balance will stay exactly the same. If you make a 1% minimum payment you are actually paying less than interest only. Therefore, you are creating deferred interest making your mortgage balance increase each month.

Before you panic, remember that deferred interest is mortgage interest which is therefore tax deductible.

Let's say your home is increasing in value $2,000 a month. The 1% mortgage loan will help you to take a small piece of that appreciation, say $500 a month, and turn it into a tax deduction.

And so you're taking a small piece of your equity each month and turning it into a tax deduction. If you did not do this, all of your appreciation could be locked up in equity.

Equity is terrific and it is certainly one of the numerous advantages to home ownership. But investing in equity will get you a zero percent return.

No one is willing to write you a check every month for your equity in your house. As a matter of fact, if you wanted to access the equity out of your home you would need to sell your property or obtain a loan. So you better qualify or else you will be unable to get a loan.

So why wouldn't you take a small piece of your equity every month, turn it into a tax deduction, and at the same time save $1,000 a month for yourself? You'll still have ample equity but with a 1% mortgage loan you'll have cash AND equity.

Should you choose this for any length of time you'll come out way further ahead financially than if you did a typical 30 year fixed or an interest only mortgage loan.

Incidentally, if the deferred interest is really a concern, try making bi-weekly payments. Making a bi-weekly payment will reduce, and in some cases eliminate the deferred interest all together. Meaning your mortgage balance would not increase.

The way to set the loan terms up correctly:

1) The 1% payment option on these loans is only accessible for the first five years. But you could actually keep one of these loans for 30 or 40 years. If you opt for a 40 year loan your monthly payment will be lower but the payment options won't last for five years. The specific game is to keep the 1% payment for as long as possible. So get a 30 year amortization.

2) The 30 year, 15 year and interest only payments are tied to an index. Pick a slower moving index like the MTA (Monthly Treasury Average) instead of a faster moving index like the Libor (London Inter-Bank Offered Rate).

So how could you lose with a 1% home mortgage?

In the event that homes in your area are rapidly heading down in value, deferred interest could lead you to become underwater in the home.

But if your area is going through a 3% to 5% rate of appreciation and you save what you save by making the minimum payment, a 1% mortgage loan can have a rather positive impact on your financial future. - 41115

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New Unique Article!

Title: 1 Percent Property Finance Mortgages - What Is The Actual Catch?
Author: Richard Russell
Email: kevinlynch2@gmail.com
Keywords: banking,blogging,business,credit,credit cards,credit repair,debt,family,finance,real estate,loans,education
Word Count: 817
Category: Finance:Credit
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