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Interest-only home loans are a phenomenon that has been gaining
strength and popularity over the last decade or so. The
fundamental principle of an interest-only home loan is that the
buyer is only responsible for paying the interest on the
mortgage for a fixed period of time, often between five and
seven years. This sounds fantastic until that interest-only
period has expired and its time to pay off the principal, on
which you haven’t made any progress since you signed the
mortgage. That said, interest-only loans can be right for some
people.
The Pros
The best part about an interest-only home loan is obviously
that the payments will be significantly reduced for a period of
at least five years after initially signing the mortgage. This
can allow you to purchase a property that you may not otherwise
have been able to afford. You can use the money saved on your
initial payments as investment capital in order to prepare for
the higher payments that will come down the road. You can also
prepare in such a way as to be able to pay off the entire
mortgage once the interest-only period has expire.
It should be becoming increasingly clear that interest-only
home loans are only for certain types of people. For the person
that is primarily paid through commission or bonuses, the loan
can be great. During off-months the buyer can make the minimum
payment on the interest only; on months when a bonus or
commission came in, he can pay off huge chunks of the
principal. It could also be good for someone who can reasonably
be expecting to make more money before the interest-only portion
of the loan has expired. This could be because of an anticipated
promotion or an investment opportunity for which the saved
mortgage money will be used.
The Cons
Lenders and brokers are pushing interest-only home loans
aggressively these days, which should give you some indication
that they can be a slippery slope for many types of people.
Wage earners and salary earners without a reliable expectation
for increased income over the next five years should be
cautioned not to sign on an interest-only home loan.
Consider this: if you sign an interest-only home loan with an
interest-only payment period of seven years and pay the minimum
payment every month for those seven years, every single dollar
you’ve paid has been wasted. You still owe your creditor the
entire value of the house. At that point you’ll need to begin
paying the interest and the principal, and your monthly
payments will go through the roof. Buyers should not use an
interest-only home loan simply as a means to affording better
property now. It should be used to leverage the money saved on
the initial payments into being able to afford a better
property over the long run. If this does not describe you, you
should probably stay away from interest-only home loans.
About The Author: If you’re interested in more information,
visit
http://www.BenchmarkRealtyLLC.com/evans-co-real-estate.php
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