Even though there are different kinds of 1% mortgage loans, there are really only two big things you need to know to win with one.
First, make sure that the loan is set up correctly from the start.
The second is to make sure you use the loan the right way so you can get the most out of it.
Let's start by talking about how the loan works. Then we'll talk about how to set up the loan so that you can get the best financial benefits from it.
First of all, there are different ways to pay back 1% mortgage loans. When you get your mortgage statement each month, you can choose between a fixed payment for 30 years, a fixed payment for 15 years, a payment for interest only, and a minimum payment of 1%.
Even though you have a few options for how to pay, you should only choose the 1% minimum payment.
Why?
Because you would be better off with that type of loan if you wanted a fixed payment for 30 years, 15 years, or just interest. Most of the time, these payments are higher with a mortgage loan with a payment option.
If you choose the 1% minimum payment, the first benefit will be a big reduction in your monthly payment. It's likely that your mortgage payment will be cut in half. This is a pretty nice first benefit for most people who own their own homes.
To make the 1 percent minimum payment work even better, you should put away what you save. For example, let's say you got a 1 percent mortgage loan to refinance your home, paid off all your credit cards, and cut your monthly payment by $1,000 a month.
Now, if you save that $1,000 a month instead of giving it to your creditors, you'll have $60,000 in cash after five years, even if you don't get any interest on it.
The second reason to choose the 1 percent minimum payment option is this:
Tax savings.
If you only pay the interest, the amount you owe on your mortgage will stay the same. If you make a minimum payment of 1%, you end up paying less than if you just paid the interest. So, you're creating deferred interest, which makes your monthly mortgage payment go up.
Before you start to worry, remember that deferred interest is the same as mortgage interest, which is tax deductible.
Let's say that your home is worth $2,000 more every month. With a 1% mortgage loan, you can turn a small part of your home's value going up, say $500 a month, into a tax deduction.
So each month, you take a small amount of your equity and turn it into a tax break. If you didn't do this, all of the increase in value would be stuck in equity.
Equity is great, and it's one of the many great things about owning a home. But if you put your money into stocks, you won't get anything back.
No one will send you a check every month for the value of your home's equity. In reality, you would have to sell your home or get a loan in order to get the equity out of it. And if you don't meet the requirements, you won't be able to get a loan.
So why not take a small amount of your equity every month, turn it into a tax deduction, and save $1,000 a month for yourself at the same time? With a 1% mortgage loan, you will still have a lot of equity, but you will also have cash.
If you do this for a long time, you will be much better off financially than if you took out a regular 30 year fixed mortgage loan or an interest-only mortgage loan.
By the way, if you are worried about the deferred interest, you could try making payments every two weeks. If you pay every two weeks, the deferred interest will go down, and in some cases it will go away completely. That means the amount you owe on your mortgage would not go up.
How to make sure the loan is set up right:
- The payments for the 30-year, 15-year, and interest-only loans are all linked to an index. Choose a slower-moving index like the Monthly Treasury Average (MTA) instead of a faster-moving index like the Libor (London Interbank Offered Rate) (London Inter-Bank Offered Rate).
- You can only choose to pay 1 percent on these loans for the first five years. One of these loans, though, could be kept for 30 or 40 years. If you choose a 40-year loan, your monthly payment will be less, but you won't have as many payment options. The goal is to hold on to the 1% payment for as long as possible. So get a 30-year loan payment plan.
So how can you lose with a mortgage loan that costs 1%?
Depreciation is the answer.
If the value of homes in your area is dropping quickly, deferred interest could make you owe more than the house is worth.
But if homes in your area are going up in value by 3 to 5 percent a year and you save the money you save by only making the minimum payment, a 1 percent mortgage loan can be very good for your financial future.
For more information on 1 percent mortgage loans and other mortgage-related topics, please visit:
http://Mortgage-Training.Mortgage-Leads-Generator.com
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