Is an Interest-Only Refinancing Mortgage Right For You?

There's some appeal to an interest-only loan. Theof your property doesn't increase over those first
initial monthly payments are lower, making the loanfew years, it's going to be harder to negotiate better
seem affordable. It works by allowing home buyersloan terms.
to pay just the interest on their loan for an initialRemember, with the slowing housing market, those
period of 3, 5, 7 or even 10 years (negotiable withfast appreciations in the early part of this decade are
your lender). At the end of the interest period, thegone, meaning refinancing will be hard. And if your
monthly payments are then increased to include bothincome doesn't increase dramatically, those larger
the interest and the principal.payments can become an insurmountable burden.
So, once that first term of interest-only paymentsIn short, if you're planning to remain in the home
ends, the monthly payments are going to increase.long-term, an interest-only loan probably isn't for you.
The borrower is left with 20-25 years to pay off theIf you want to free up funds to invest, but you're
balance on their mortgage instead of the typical 30planning to sell or refinance the home before the
years. The new monthly payment is higher becauseinterest-only period ends, then an interest-only
now there's less time to pay off the loan's complete,refinancing may be helpful after all.
amortized amount. That increased payment can be aIf you've already refinanced with an interest-only
problem for people refinancing on lower or fixedloan, consider talking to a mortgage specialist to
incomes.discuss your future refinancing options. When
Interest-only mortgages are on the rise, butevaluating your action plan, consider how long you
borrowers need to understand how to use thatwant to stay in the house and the realistic picture of
financing properly. In this article, we'll talk about thehow much you can afford to pay.
benefits and drawbacks of interest-only refinancingIn the meantime, keep your credit rating high so you
loans, along with the factors you should considerhave more renegotiation power, and try to make
before you sign for one.extra payments toward the principal now before
Most people opt for interest-only loans with theyour interest-only period ends. You can offset those
expectation that their finances will improve, they canincreased payments and make a big dent in the
sell in the future or renegotiate. However, if the valueprinciple.