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Interest-only home loans are ones where you pay only interest for the first 5, 10 or even 15 years of the loan, significantly lowering mortgage payments during the first few years. Home equity lines of credit have been increasing in popularity because the mortgage lender only requires the borrower to make an interest only payment that tends to be less than the standard principal and interest payment.
Interest-only mortgage loans:
• Offer lower mortgage payments during the first few years than conventional mortgages, because initially you're only paying interest.
• Provide more purchase power to buy a higher-priced home than you could otherwise afford.
• Can help you avoid foreclosure.
• Frees up your cash flow for debt consolidation or other investments.
• Can be a way of investing in a rising real estate market.
On the other hand, interest-only loans:
• Require you to repay the entire outstanding principal in a shorter period of time, resulting in higher monthly payments.
• Could cause you to owe more on your home than it's worth if the house declines in value during the interest-only period of your loan.
Interest only loans are not just for purchase loans. Many people refinance with interest-only loans to avoid foreclosure and sometimes for debt consolidation. There are also several varieties of interest-only home equity loans (second mortgages). These work in a similar way as those offered for first mortgages, including lower payments for affordability during the first few years of the loan.
Interest-only loans can be good for people whose income is sporadic, either because they are self-employed, are paid on commission or because they receive annual bonuses. This allows them to pay only interest during lean months, and make higher payments against the principal later on when they get their bonuses or commissions.
"These loans can be of value for people who want to save or invest the money they would have paid in principal," said Keith Gumbinger, vice president of HSH Associates, a publisher of loan information in Butler, N.J. Thus, interest-only loans also make sense for investors who invest the money they save into their stock portfolios. Additionally, they could work well for real estate speculators who buy property only to sell it later on when the property appreciates in value.
According to Anthony Hsieh, president of LendingTree.com, there is typically no prepayment penalty on interest-only loans, so speculators can maximize their profits in rising markets.
In short, interest-only loans are for those who are more interested in freeing up immediate cash flow than in building equity in the home.
Maria writes loan articles for banking institutions across the country. Check out these sites that she recommends: Get fast mortgage and home equity rate quotes at Second Mortgage Quotes. If you need more loan advice about refinancing with Bad Credit, take a look at Home Equity Line of Credit. For debt consolidation and mortgage refinancing solutions, please visit the Home Equity Loans Online. |
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