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These days, as people scramble for new and more creative ways to finance buying a home, the interest only mortgage is becoming more common and well known. An interest only mortgage is one in which you have the option of paying only the interest (or just the interest and a portion of the principal) each month in the early years of the mortgage loan. Interest only periods may be applied to adjustable rate mortgages, or 30 year fixed rate mortgages, depending on the lender.

In a traditional mortgage, each month your mortgage payment is divided in two parts – one part is paid on the interest charge, the other on the principal of the loan. The main feature of an interest only mortgage loan is that during a specified initial period of time – usually three, five, seven or ten years – you may choose to make a payment of the interest portion of the loan only. The option is flexible. One month you may choose to make an interest only payment, another you may choose to make an interest-plus-part-of-the-principal mortgage payment, or a full, standard monthly mortgage payment. Needless to say, an interest-only payment will be significantly less than a traditional mortgage payment.

The flexibility of an interest-only mortgage allows you to adjust your mortgage cost on a month by month basis, giving you more control over your monthly cash flow. In any given month during the interest-only period, you have the flexibility to pay as much or as little on your mortgage as you can.

Interest only mortgages aren’t right for everyone. While you have the option of paying interest only each month during the early years, the principal repayment on your mortgage loan is accumulating. At the end of your interest only period, your mortgage payment will take a dramatic jump. Financial experts recommend interest only mortgages for specific types of borrowers: those whose income is supplemented by large commissions or bonuses throughout the year, those who can reasonably expect to be making considerably more income in a few years than they are now, and those borrowers who actually WILL invest the difference between their interest-only payment and their full mortgage payment in profitable investments.

The power of an interest-only loan, according to most experts, is that you can ‘afford to buy more house’. Because you’ll have the choice during the early years of paying only the interest each month, you can effectively afford the monthly payments on a house that’s as much as 30% more expensive than you could with an amortizing (typical) mortgage payment.

You also, however, have the choice each month of paying the interest plus as much on the principal as you wish. If you’re a salesman, for instance, whose standard income is supplemented quarterly and semi-annually by large commissions or bonuses, you could pay interest-only during lean months, saving yourself up to $350 in those months. In the months that you get a large commission though, you could choose to pay down several thousand dollars on the principal.

An interest only mortgage also makes sense if you have a solid investment plan. If a typical mortgage payment would be $900 monthly, and your interest-only payment for the month is $625, then the best financial strategy according to many financial experts is to invest the remaining $275 in a solid, money-making stocks program.

Interest only loans are not for everyone, but they can be a valuable financial tool that can help you control your spending and give your investment power some added oomph. Don’t rush blindly into an interest only mortgage, but do speak to a financial expert or loan officer about whether an interest only loan may be right for you.

Imagine landing your dream home. Your credit is a bit shaky, but you manage to get a subprime loan with an adjustable rate mortgage. A few years later the interest rates jump and you can no longer afford to pay. You see an ad for a business thats willing to helpitll pay your mortgage for a modest monthly fee while you get back on your feet. But heres the heartbreak: its a scam. The con artists just take your money and run

Its just one of the latest schemes and frauds being seen these days across the financial services industry.

These scamswhich include plenty of shenanigans with mortgages and subprime loansare costing the nation tens of billions of pounds a year.

Millions of homeowners are caught up in this subprime mess. The Federal Reserve has gotten involved in an attempt to bail out the mortgage loan companies. Criminal charges may be filed against these companies for falsifying records, loaning money to under-qualified home buyers, and not reporting the truth to investors.

These are all good reasons why the US government is squarely focused on cracking down on the largest of these financial crimes, launching proactive initiatives and shifting resources as trends emerge, all the while working hand-in-hand with a host of government and private sector partners.

Currently, investigators are actively pursuing mortgage companies and investment irregularities.

The government is investigating 14 corporations involved in subprime lending as part of our Subprime Mortgage Industry Fraud Initiative launched last year.

The companies come from across the financial services industry, from mortgage lenders to investment banks that bundle loans into securities sold to investors. Theyre also looking at insider trading by some executives.

Traditional mortgage fraud:

In one state alone, more than 1,200 cases open today (up about 40 percent from last year), mostly involving fraud for profit, where groups of straw buyers, realtors, etc. rig schemes to buy properties that are flipped or allowed to go into foreclosure.
Hotspots include California, Texas, Arizona, Florida, Ohio, Michigan, and Utah.

Suspicious activity reports that we review for potential mortgage fraud have grown from 3,000 in fiscal year 2003 to 48,000 in fiscal year 2007. This year, theyre on pace to receive more than 60,000 such reports.

A recent case: In November, the owners of a long-time Minnesota homebuilder called Parish Marketingalong with a bank officer, a closing agent, and otherspled guilty to a 100 million mortgage scheme involving some 200 homes.

If you are a victim of the subprime mortgage madness, contact your bank and see if there are any programs in place to alleviate the pain.

Most of us are familiar with tradition rate mortgages.   We borrow a fixed amount of money for 15 to 30 y ears and we agree to pay it back at a given interest rate over the life of the loan.  Our payments are the same amount every month, whether it is for 5 years or 30 years.  For the majority of homeowners out there this is the most ideal type of mortgage as it has no surprises or sudden increases in monthly payments.  However, for some home buyers, an adjustable rate mortgage may very well be the better financial tool.

An Adjustable Rate Mortgage (ARM) is one that can go up or down over time depending on market conditions.  Some ARM’s adjust once, while others can adjust several times over the life of the loan.  The main purpose behind an ARM was to let people buy more house then they might be able to afford now assuming that as the years went by their earning power would be greater and thus when the mortgage rate adjusted they could afford the new payment.  Unfortunately, many people don’t understand how ARM’s work and are often unprepared for when the rate adjustments take place.

There is a segment of the population out there that can benefit from ARM’s, regardless of the rates associated with them.  Those who plan to be in their home for five years or less typically can save quite a bit by using an ARM vs. a traditional mortgage.  An ARM let’s them pay an interest rate that is usually below market rates for the first few years of the loan.  Since a homeowner may be planning to move in a short time span (such as when the kids graduate from school) they can take advantage of the low up-front rate and sell the home before the rates have a chance to adjust.

A savvy home buyer who maintains a stellar credit rating could also use ARM’s to get a lower rate up front for a few years and then switch to a fixed rate mortgage through a refinance down the road.  They may be able to save thousands of dollars in interest by switching from an ARM to a traditional mortgage even after paying the refinance fees.

Finally, ARM’s can be the right mortgage for you if you study the markets and know where the rates are heading.  If interest rates are currently running high and you know that over time they will settle back down, then getting an ARM can help you take advantage of those lower rates over time while helping protect you from the high rates of today.

Of course, as with any mortgage, you should carefully review with the mortgage lender all of the costs and assumptions.  An ARM is not always the best mortgage tool of choice depending on your situation.  Make sure you understand what you are signing and always get more than one mortgage rate quote no matter what type of mortgage you go with.

Reverse mortgages are increasing in popularity as a way to turn home equity into a liquid asset. Before you jump on a reverse mortgage, you need to understand the impact it can have on government benefits.

The beauty of home ownership is found in the value of time. The longer you own a home, the more valuable it become. On one hand, you are paying off the mortgage over time, which is increasing the equity you have in your property. The other finds your real estate appreciate over time. This double whammy is what makes home ownership so attractive.

Retirement and old age will become an issue when you need to convert your home equity into usable cash. Reverse mortgages are touted as a solution. A reverse mortgage is a loan against your equity that does not need to be repaid until an event happens, usually the sale of the home or your death.. Essentially, you have reversed the process of a traditional mortgage. The lender is now giving you money in exchange for a piece of your home equity. Payments are expedited in lump sums, monthly or through credit lines depending upon the particular package you go with. As the clock ticks, the equity in your home is reduced, but you will have a reliable and predictable monthly revenue source.

Over the years, the fed has tried to find ways to reduce the amount of benefits they pay out to citizens. One of the factors they like to use is the asset value you hold. If you have a certain amount of assets, your benefits are reduced or terminated because they government takes the position you do not need them. An analysis of government benefits is beyond the scope of this article, but reverse mortgages have an impact.

Basically, be assured that taking a reverse mortgage on your home will not affect Medicare or social security benefits. This is true, however, only so long as you spend the full amount you receive each month. The government is always playing with benefit issues, so make sure you get up to date information on the situation. You will want to understand what you are getting into, particularly if you rely heavily on Medicare for the payment of medical bills.

In general, reverse mortgages do not impact most government benefits. That being said, make sure to get an informed opinion on exactly what will happen before you agree to a reverse mortgage.