Is An Interest Only Loan Good For Me?

Home Loans

Is An Interest Only Loan Good For Me?
(presented by www.refinance-refinance.net - mortgage lenders)

By Ben Afzal

Basics

An interest only mortgage is a loan where the borrower only pays interest on their loan and not any principal. Because no principal is being paid down the monthly payment is lower. With no principal being paid down a borrower will continue to have a loan that remains the same size. The loan size does not increase or decrease.

Types of Loans

Interest only loans are offered for many different mortgage types.

Interest only mortgages are offered on many loan types, including:

1 year fixed
2 year fixed
5 year fixed
10 year fixed
30 year fixed

There is a relatively new loan that is interest only and fixed for 30 years. At the end of the 30 years the loan will remain the same size. This is a new loan that wasn’t offered until recently.

Does It Make Sense

You can judge whether an interest only loan is right for you by answering:

how much can you afford
how will you build up equity

If you can’t afford a very large payment an interest only mortgage may be a short to intermediate solution. As you grow older and your income rises you may be able to afford more in the future.

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HOME LOANS ADVERTISEMENT

The equity in your property is built up in two ways. The first method is paying your loan down. This usually happens slowly over the 30 year term of your loan. The second method is an increase in the value of your property. You don’t have any control over the second method.

For many borrowers in a rising real estate market the easiest method of building up equity is letting the market do it. They “ride up the value” of the property and don’t pay down the principal with a high payment.

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This entry was posted on Thursday, October 12th, 2006 at 2:19 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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