Interest only loans are loans that give you an option to pay just the interest on the loan for a limited period of time. It also gives the option of paying the interest plus as much of the principal you want. The main advantage of this loan is the lower interest you pay each month. They also help to considerably control the monthly payment and cash flow each month. After the initial period, the repayments are raised to fully amortized levels. These loans also allow for a large principal prepayment if desired. Interest only loans can be fixed-rate mortgages or adjustable-rate mortgages.
Interest only loans of longer terms, say 30 years, are especially useful since the extra money that goes as repayment of the principal can be invested elsewhere for a higher rate of interest. Or, it can be used to repay higher interest debts like credit cards. They are also a good idea for people who have taken interest only loans on houses they don’t plan on staying in for more than 10 years. This would enable them to pay just the interest as long as they are in the house and then repay the loan when they are moving out. The extra money can be used for meeting unexpected expenses or to finance home improvements. They are a good option for people who are expecting an increase in their income; people whose income is based on bonuses and commissions, and people who invest their savings on interest-only loans.
Interest rates on interest only loans range from 5.875% for a 30-year VA fixed, 5.500% for a FHA 1 year ARM, 5.750% for a FHA 30-year fixed, 7.125% for a 5/1 ARM, 6.875% for a 7-year Balloon and 6.625% for a 30-year fixed. This is all susceptible to change.
However, interest only loans can be risky, since the interest rate may increase after the initial period; the house may lose its value; there may be change in the future income flow, or you may not be able to pay the mortgage for any reason.
With increasing real estate prices, interest-only loans are becoming a preferred option for many. There are also many lending companies that are giving attractive options on these loans. Information about interest-only loans is available on the Internet. They also contain easy-to-use interest only calculators that outline the kind of repayments you will have to make on the loan.
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