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Interest Only Loans - Things to Know

By Edited Jun 20, 2015 0 1

Are you looking for a way to finance the purchase of a new home? Interest only loans are quickly becoming a favorite way for many home buyers to be able to get the home loan they need while paying payments that they can afford. An interest only loan may work out great for the situation that you are in depending on if you agree with the terms of the loan and how this type of loan works. There are a few things that you will want to know about interest only home loans in order to make the decision if this type of loan is the right one for you.

Interest only home loans are loans where you will only have to pay the interest on the loan for a set number of years before you are asked to pay the principal. This means that your payments will be lower each month than they would be if you were paying the principal plus the interest the whole way through your loan. Many home buyers use this type of loan to their advantage to be able to afford a home that they normally would not be able to get financed for. This means they can get a home that is more expensive than if they had secured a standard principal plus interest payment loan and they only have to worry about the low payments that they have to pay with interest only house loans.

It is important to know that you will not be paying the interest on the loan amount forever. All interest rate only loans will let you pay only the interest payments at the current interest rate for a few years, but at the end of the time period that is set you will be asked to pay the remaining principal balance on your loan. If you are unable to pay the remaining balance of your home loan then you will be able to refinance your home loan or you may have to pay the principle payment plus the interest at the same time. As you can see there are many different types of loans with interest only payments so you should fully understand what is involved and what the requirements are down the road. Many people jump into these loans just focused on the lower payments and push aside the thought that their payments will be higher in a few years.

There are a few things that you will want to consider when you are looking for mortgage interest only loans. You will want to first figure out how much your payment will be each month. There are plenty of mortgage payment calculators online that you can find to do this calculation, but understanding the mechanics of your loan is important to smart financing. Calculating what your payment will be can be done by multiplying the loan amount by the interest amount. You will then know how much interest is charged per year. You will then divide that amount by twelve in order to figure out how much your monthly payment will be. You will find that the payment that you will be required to make is much lower than the payment that you would have to make with another type of loan.

Other things that you will want to think about are the amount that the utilities are likely to cost if you decide to purchase a larger home. Remember that it will take a lot more heat or air to make the house comfortable, and you are likely to use more lighting in order to brighten up the larger areas of the house. You should also check into how much the tax are going to cost for a larger home as they will probably be higher. You want to be sure that you will be able to make your interest payments, pay your other bills, and still put money back to pay off the principal when comes due if you want to successfully own your own home without having to pay a lot more than you want.

The reason that interest only loans are so popular right now is because of the decline in interest rates. The lower interest rates that are being offered have more people leaning toward getting this type of loan, because this means that their payments will be extremely low and they will be able to do other things with their money besides put it in equity. These types of loans are also popular in a market where home values are increasing or when an owner does not plan to stay in the financed property past the time when the interest only loan readjusts and instead plans to sell the home or possibly just refinance at that point.

If you are going to take on this type of loan it is a good idea to play it smart with your finances during the period of interest only payments. A good idea would be to pay off any unsecured debt that you may have while you are paying the interest only payments on your loan. This generally means credit cards and small loans for things like furniture and appliances. This way when it is time to pay the principal of your loan you will have more money available to make those payments and be able to pay off your house.

If you do your research with different lenders you should be able to find interest only loans that will work great for you provided to have a clean credit history and always make your payments on time, especially any current mortgage paymenst. Be sure that you know exactly what you are agreeing to before you sign any paperwork, and be sure that you shop around at a few different lenders before you decide which one that you want to go with. By calculating the amount of money you will be able to pay for a house payment each month you will have a better idea of the price range you are looking for. Be sure to include other important bills that are attached to the purchase of a home so that there are no surprises. You will be able to own a more valuable home that you and your family will love with an interest only home loan.


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Comments

Sep 28, 2010 8:04pm
mcimicata
Phenomenal article that was definitely well written and informative...I am looking forward to reading many more of this sort!
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