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