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It also is important to remember that interest-only loans:
Do not carry a lower interest rate;
Do not allow the borrower to avoid private mortgage insurance;
Are not less costly to amortize;
Do not mean the interest rate is fixed for the interest-only period.
Some argue that these loans prohibit borrowers from building equity in their homes. For the past 10 years, though, U.S. homes have been appreciating at a rate of 5 percent to 6 percent each year. Even if borrowers are not paying down the principal, they are building equity through appreciation. Some will argue paying down mortgage debt is the way to achieve wealth.
We all can relate to the dilemmas of the mortgage process. To avoid trouble down the road, we all must take the responsibility of educating borrowers and ourselves on the best loan options on a case-by-case basis.
Whether or not an interest-only loan is the best fit, we must understand the needs of borrowers and work with lenders to determine the best mortgage and options.
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