Dymphna Boholt on Honeymoon Loans

Hey everyone!

Dymphna here I've just come back refreshed from a great weekend with friends, exploring some coastal cities and have some great new ideas to share with you. As you know, we are living in changing times, and with change comes opportunity. It really warms my heart to see the heart working spirit of so many Australians, striving to turn this economy around and I know that we'll get there sooner rather than later. To keep perspective on the journey, I wanted to share with you some of my thoughts on our current financial market:

Firstly lets examine why the disaster in America occured. With the flood of credit that came to the market with the lower interest rates of the last decade, a product of lax monetary policy led by Alan Greenspan along with global investor's desire for higher returns with protected risk. The result of this process led to a rise in the securitization of loans: banks would re-sell packages of loans into risk-adjusted securities to investors throughout the world. Taking this process a step further, investors should to hedge, or limit, their risk by insuring against the risk on these securities by shorting mortgage banks, buying credit default swaps and becoming more aggressive in lending practices.

Rising property investors such as yourself were inundated with countless loan and mortgage offers, each promising a better structure than the next. As a borrower contemplating real estate financing, always remember: in investing, just as in your personal life, the long-run outcome is what matters.

In fact, the Bank of England recently cut interest rates by 1.5% in an effort to spur investment activity which could have unintended consequences by providing lenders with relatively “easy money” to continue to issue risky mortgage loans, while rate cuts by the US Central Bank had a similar, if less dramatic, effect Before signing eagerly on the bottom line, however, you'll want to make sure this is a financing marriage that can last.

Honeymoon loans are designed with low short-term interest rates (some even have an interest free period), only to kick in high rates and fees after the initial period. Much like an informed bride or groom, you'll want to ensure that you're well positioned to be successful beyond the short run.

In order to do this, make sure that you calculate the “true” cost of the loan over its entire cycle so you can come out with profit and peace of mind. You'll want to make sure you read over any loan agreement carefully so that you understand all of the stipulations, and should retain an attorney who can review the contract in advance of the agreement. Keep in mind that if you have a variable interest rate you may be at the whim of a shifting market, so give yourself as much certainty and stability in the contract as you possibly can. Rather than focusing upon the initial honeymoon period of the loan, consider the costs and benefits of taking on the debt, in light of your investment returns and goals.

I've always kept a positive attitude even during tough times because it's through solving problems and keeping a sense of humor that we've worked through hard times in the past. So, keep your heads up and make the right decisions to get your finances back on track sooner rather than later!

Talk to you soon Dymphna,