Interest only Home Loans: Are They for You?

1. You are a First Time Buyer and cannot Qualify. For the first few old age of buying a home, most of the mortgage you pay travels towards interest, not principal. With the interest only payment option, the lower payments are more than manageable and you can utilize the money you salvage to pay off other debts or do investments.

2. Cannot happen anything in your terms range: An interest only loan can increase your buying power.

3. If you are retired or life on a fixed income the interest only home loan can supply extra cash flow for your life needs.

3. If you are a 'flipper' and purchase or unrecorded in an country where home terms are appreciating quickly, it may do sense to get a 1-10 twelvemonth interest only loan and put the money elswhere. The interest lone option may increase your interest rate slightly or you may pay a fee of .125% of the loan amount and maintain the lower interest rate.

Here is how the difference on the monthly payments with an interest only home loan would look:

Loan amount $180,000/30 Year Fixed Home Loan/ Interest Rate of 7%
Principal and Interest Payment: $1197.54
Interest Only Payment: $1050
Difference of: $147.54

If you were to take that monthly nest egg and put it at an annual tax return of only 8%. By the end of 10 old age you would have got got accumulated a $27,319 investment.

At the same clip had you been paying principal and interest you would have only shaved $6,526.19 off the principal. That’s right, you still owe $173,473.81 on your $180,000 mortgage even after 10 old age of paying on it.

No wonderment more than than and more people are choosing the interest only home loans.

Here are a few more things to maintain in head about this type of loan.

The interest only option is typically only applied to the first 5 to 10 old age of the mortgage term after which the loan have a wage back schedule one 3rd shorter. After twelvemonth 10 the loan is fully amortized for the remaining 20 years. You payment can and will leap significantly.

At this point you can go on paying the higher payment or you could refinance. In fact you could make an Interest Only Refinance if you choose. Keep in head by the end of 10 old age your income should have got increased significantly and you should be able to do the payments on the increased amount. Or you can sell the home to pick up the profit.

The interest only mortgage is not limited to a 30 twelvemonth fixed loan. There are many options to take from: eg. an Interest Only ARM, Interest Only Elephantine Loan Or an Interest Only Home Equity Loan.