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It is for these types of investors that the interest only mortgage options should be used. The borrowers are business individuals, with business plans, and sufficient knowledge on the subject of the workings of commercial and mortgage loans, to understand a good investment from a bad. The commercial mortgage industry is a huge market, and since most of the monies borrowed exceed the $100,000.00 amount, the international bank rates, or LIBOR, are used for determining the commercial mortgage rates.
Wealthy investor as a rule means successful investor. These investors are very educated in the investment process, be it real estate or stocks, they understand the risks they’re taking, and how to make best use of the risk for the profit. The real estate investor and the interest only mortgage are a perfect pairing. The real estate investor looking to retain an investment for short term can actually benefit from the lowered capital investment of the principal payment. Particularly in a situation where the investor is improving the property and the value is certain to increase.
Lots of the consumers, who are being offered these interest only loans, are not business individuals; they’re not wealthy investors looking for a way to invest excess capital. They’re just clients looking for a place to live.
The investor generally has an investment analyst at his or her disposal, with tools and resources that can find out a good investment, the risk involved, and measure it against the amount of risk the investor is willing to take. All these factors go into determining if an investment is a purchase or sell. This specific borrower fully understands the risks involved in an interest only mortgage, and has spent the time needed to determine if the product is right for his investment needs. The real estate investor is a business individual, not a shopper borrowing to pay for a place to live
When you compare this with the consumer buy or sell, you’re not even comparing apples to apples.
Some investment opportunities for the wealth-building investor will at some point need an additional sum of monies to turn the investment into a profitable situation; do you suppose the standard shopper has another ten or fifteen thousand dollars at their disposal, in case the interest only option should become a problem, or they’re home should need unexpected repairs, in order to remain at the purchase value? Most likely, the answer here would be no.
The short-term real estate investor or developer wants to keep his or her expenditures at a minimum during this investment period, saving as much of the expendable cash as possible for the actual renovation or preparation for sale of the property itself.
The less money spent on mortgage payments, or in the investor’s eyes, investment expense, the more money there is to actively and aggressively pursue potential buyers and enlarge the value of the property. This is good business, and good business is based on sound business decisions.
It is here that every shopper needs to stop and have another look at their borrowing situation against that of the investor. The wealth-building investor is a business individual. Their source of revenue depends on their knowledge of the product they market, in this case real estate. As a rule, a business individual is not going to take a risk with their personal investments; not like the risks they will take with a business investment. Why? Since the home they share with their family is much more significant than a business deal, most are not willing to risk losing their home.
I still am not an advocate of the interest only mortgages, but for some situations they are the best choice. In a business setting, when many factors have been thoroughly discussed, and the interest only option has proven itself to be the best alternative, I think the interest only mortgage should be used. But this opportunity should remain as the knowledge of LIBOR is among the masses, virtually unknown.
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