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Interest Only Home Loans

Interest Only - Interest only loans are loans with an initial period of time where the borrower pays only the interest of the loan while the principle balance remains unpaid. This initial period varies from lender to lender, and program to program.

Interest only loans can provide a lower payment than a traditional fixed mortgage. Discuss the differences with your mortgage professional. Your mortgage broker will help you to understand which product will benefit you the most.

Figuring out your monthly payments are easy on an interest-only loan. Simply take the loan amount times the interest rate (7% would be .07) and divide that by 12.

Many borrowers use an interest only ARM loan program if they know they are only going to be in their property for a couple years.

Interest Only loans are often a good choice if you are disciplined enough to take the money you save from a fully amortized payment and apply the savings to other investments such as your IRA. They are also an excellent choice for investment properties.

Be careful when using an interest only loan that you don't buy more house than you can really afford...It can be a dangerous tool if used the wrong way...

30 year fixed rate interest only programs are becoming more popular. Usually many of these programs will offer an interest only payment period for the first 5 or 10 years and then will convert to a normal 25 or 20 year loan where you will make principal and interest payments. The rate will remain fixed from start to finish and will not change at all, not even when the interest only period is over.

Pros and Cons Of An Interest Only Loan - As with everything else in life, there are pros and cons to every type of mortgage available. Your personal situation will ultimately determine what type of loan is right for you at this time, but if you are considering an interest only loan these are some of the pros and cons that you should be aware of.

With an Interest Only loan the interest rate is lower than with amortized loans. Which means it's your lowest payment option other than negative amortization loans.

Refinancing into an Interest Only loan is the best option if you're not planning to keep the loan for more than 5-6 years.

One con of an interest only loan is that your loan balance never decreases if you only make the interest only payment each and every month. Many consumers get into an interest only loan thinking they will pay extra money, above the interest only payment, each month when they can however they never pay anything extra and their mortgage loan balance remains the same. Most consumers find reasons each and every month to take the money they are saving and apply it towards buying new things and never actually use the savings to pay down their mortgage loan. This strategy can be extremely harmful in the long term and can negatively affect retirement planning strategies.

Savvy investors that prefer to keep their assets as liquid as possible should consider an interest only loan. An interest only loan will free up cash flow every month that can be used for other investments.


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