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