Caution will become your friend in your life as you grow older over the course of living; you simply throw it to the wind, when you're young. You wait for him to blow by as you get older, and then you reel him back in, why?
Caution has only a few friends, but several opponents: Haste and Waste; Caution begins to look like a much better friend after several trips around the block with these two.
Taking the time to examine all your options, and making a good sound decision is part of the requirement for being a friend to Cautious. This happen when you are introduced to Financial Planning, 401(k) s, Retirement Funds, etc.
This story is from a story standpoint, but it is in all honesty, the truth. You do become more careful in your investments, with your time and your money as you get older.
Interest only mortgages are one of those options you might want to think about, that if you're investing in real estate for the short term, and you've consulted with a reputable financial advisor.
Real estate does not generally include in investment portfolios, so more than likely this is a business venture or an investment business. Financial planning is a must in either situation. After thorough planning and thought, this is only one of those options, that should however, be considered. The transaction may be or may not be to your benefit.
Long-term investments, those with capital gains, and purposes except a quick profit, wouldn't be believed candidates for the interest only mortgage. In the way of building and growing investment value, the interest only mortgage doesn't offer much, since you simply never enhance the value of the asset to you.
Since you are constantly providing a profitable situation for the lender, you increase the value of the loan for the lending institution. The responsibility of your principal investment never decreases.
What about the short-term propositions and your financial planning? Well, this leaves many doors unopened and many avenues unexplored. However, there aren't very many "short-term" considerations open for discussion, given the fact that you're considering the impact of the interest only mortgage product on your financial planning expectations.
The result of the low monthly payments during the term of the interest only payment is the only short-term advantage for it.
When you think about the impact your 401(k), an MSA, an IRA, or any other tax deferred savings or retirement program can have on your bottom line, in the monarchy of tax savings or tax deferment, the interest only mortgage doesn't really have that much to offer; yes, it's true that your mortgage interest is tax deductible, but not on a one-to-one ratio.
Tax deferred retirement accounts, even SEPs, for the self-employed individual have a one-to-one ratio of tax savings.
One more long-term financial planning consideration: when you would normally have paid out a regularly amortized loan, you will still be paying on the interest only mortgage. If you weren't still paying on a mortgage, what could the potential savings be, for you?
A concept that few consumers ever learn to appreciate is the time value of money. It means the dollar you have today, will be worth less tomorrow than it is today, therefore saving today produce a much better benefit than waiting until you're 35 or 40 to begin saving and retirement planning.
Quite often, your home is your greatest asset, and is the only savings that many consumers have managed to accumulate. You effectively have no accumulated savings if the only payments you have made were for the interest due on the principal.
Now, in their 20s or early 30s that might not be an issue for someone; however, you have begun to contemplate retirement, and ways to save for that phase of your life by the time you reach your 40s.
The morale from this article is caution and good sound financial planning may determine that an interest only mortgage will benefit you greatly.
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