Types of Home Mortgages: Interest Only Home Loan
All The Rage: The Interest Only Home Loan
These loans are the talk of the town lately. Lenders advertise
interest only loans through all media. However, these loans
won’t work for everyone, and can in fact be detrimental
to some.
Who Benefits from an Interest Only Home Loan and Why
The borrowers who are not earning as much as they will
be in a few years are possible candidates—the worker
who has possibly just entered the job market and has a promising
career, for instance, or the employee or business owner
who is paid irregularly.
The interest only loan is also a possible fit for the investor
who will use the savings on money-making ventures. For instance,
someone who invests in commercial real estate might take
the money saved on the house and buy into a new office building
that will make a lot of money.
The everyday worker without plans for investments, however,
is usually not a good candidate for an interest only loan.
This is because the house she has bought with this interest
only loan does not become and investment itself. The way
the loan works is that the borrower pays only interest for
a few years, then must refinance or pay off the loan. The
other option is to start paying the principal down, and
this will increase payments dramatically.
Also, most people won’t be purchasing an expensive
enough home to make the interest only loan worthwhile. The
more expensive the home, the more the savings and the better
investments the borrower can make with the money. If you’re
only saving $100 to $200 a month, it’s not worth it—paying
down the principal would be more profitable.
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