DEAR BOB: What do you think of the new “interest-only” home mortgages? As a longtime mortgage broker, at first I didn’t recommend them to my borrowers. But in some situations, such as when a home buyer only expects to stay in the home a few years, I began to think these loans were a good deal for the borrower because in the first few years there isn’t much mortgage principal payoff – David G.
DEAR DAVID: We agree. The new “interest-only” mortgages are a very good deal for the lenders. The reason is they keep all the mortgage principal busy earning interest dollars. That’s the primary goal of mortgage lenders to keep interest coming in.
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Just between us friends, mortgage lenders really don’t want to receive principal pay down. The reason is they then have to rent that money again to earn interest on it.
But homeowners who plan to stay in their residences “forever” should not borrow on an interest-only mortgage. The primary reason is such borrowers won’t be gradually paying down their mortgage balance.
Also, interest-only mortgages are great for investors who want to keep their monthly payments at a minimum while making 100 percent of their monthly payments tax-deductible interest. More details on the tax aspects are available from your tax adviser.
SMART VACATION TIMESHARE BUYER TELLS ALL
DEAR BOB: I’ve read your columns over 10 years. Why do you discourage vacation timeshare investments? My husband and I own two deeded property vacation timeshares and we have always been thrilled with our vacation experiences. Before we purchased a timeshare, we attended several presentations. In fact, during our financial lean years, we took advantage of the presentations that offered two- or three-night destination stays. That was how we vacationed and learned. We learned to buy deeded property instead of “right of use” timeshares. Now we use one timeshare to trade for vacations in other areas, but we love to use our Orlando, Fla., timeshare, as it is one of our favorite places to vacation. Why do you discourage timeshare purchases? – Julia H.
DEAR JULIA: Congratulations. Thanks for sharing your good timeshare experiences. Most people are not as wise as you were about buying timeshares.
The primary reason I suggest buying vacation timeshares only with money you will never need again is they are virtually impossible to resell for their purchase price.
A secondary reason for being extra careful is the rising annual fees for most timeshares. As resorts get older, they need more repairs so the annual fees go up, often 10 percent to 20 percent per year.
A third reason for not buying a timeshare is the difficulty of getting rid of it. Most timeshare developers and property managers refuse to take timeshares back, even for free.
With a big timeshare supply still available, most developers want to sell their “new” timeshares rather than take back resale timeshares from unhappy buyers. As users who purchased at good locations, thanks for your favorable timeshare report.
REALTY AGENT QUITS BROKERAGE OVER “PROCESSING FEE”
DEAR BOB: Thank you for explaining the real estate brokerage rip-off fees some companies are charging their unsuspecting home sellers and buyers. I formerly worked for a nationally franchised famous-name broker who charges home sellers a $495 administration fee and home buyers a $195 processing fee. To “sweeten” these fees to us agents, the firm gave us $50 from each fee we collected at the home-sale closing. I found this procedure despicable. So I left and am now happily affiliated with a smaller firm, which doesn’t charge home sellers or buyers any fees other than the customary sales commission – Jen H.
DEAR JEN: Congratulations on leaving your brokerage because of the unnecessary and pure-profit junk or garbage fees. Real estate brokers should be able to profit from the traditional real estate sales commissions without charging additional fees to home sellers and buyers.
The new Robert Bruss special report, “Ten Easy Profit Methods for Your Home and Investment Property,” is now available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
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