Pittsburgh Mortgage

Interest only loans are (as you probably figured) interest based. With this kind of loan, a borrower only pays the interest due on the principal balance. In most cases, the principal balance does not change over the set term. After the interest only term expires the borrower typically has an option for one of the following:

• The borrower can covert the existing loan to an amortized loan wherein he makes regular payments on the principal and the interest.

• The borrower can also enter what is known as interest only mortgage, wherein he can make the payment on the principal amount.

The interest only period varies from one country to another, but in the United States the interest only period typically is in place for 3 - 5 years. This essentially means that if a borrower has to pay a loan over a period of thirty years, he can only go for the interest-only option for the first five years or first ten years. This is usually dependant on the choice he/she makes and the  lending organization they use.

At some point the interest only term ends and the amortization of the principal balance takes place for the remaining years. The main advantage of the interest only loan is that the initial payments are much lower than the payment that a person makes later on. This enables borrowers to plan accordingly and they can borrow more amount of money than they can afford. This is done by taking into consideration the hope that their salaries might just see a substantial increase over the term of the loan.

There are many factors that go into the bank’s decision, from how long you’ve been at your job to how many credit cards you carry. The most important thing lenders look at, however, is your ability to meet your obligation to them, which is a function of your income and debt levels. To gauge your ability to pay, lenders look at a pair of numbers called the “housing ratio” and the “total-obligation ratio.”

They’re not as daunting as they sound. The first is just the percentage of your gross monthly income that you’ll need to spend on housing expenses after you buy the new home. It includes your mortgage payment, taxes, insurance and maintenance. Lenders will want to see a ratio of 28% or lower. The total-obligation ratio, meanwhile, is the portion of your income that goes to covering both your housing expenses and any other obligations, such as credit cards, car loans and child support. There, your lender will want to see a ratio of 36% or lower. Both of these ratios are often negotiable upward.

Home equity loan vs Home equity line of credit

Typically a home equity loan can be obtained in a lump sum or used as a revolving home equity line of credit.

A home equity loan can be:

• A fixed rate mortgage
• An adjustable rate mortgage

Homeowners who require more money in large amounts usually apply for a home equity loan. There are a few expenses that make a home equity loan useful:

• Debt consolidation
• Home repairs
• Medical bills
• College tuition for family members

Tax benefits A home equity loan is also beneficial because the home equity loan rate charged is usually tax deductible, as the loan is used for its primary functions. You can use a home equity loan calculator to check what various home equity loan rates will mean for your monthly payments.