Yes, interest only financing does exist and most lenders have some type of interest only solution in their arsenal (unless of course they are not legal in your state). Borrowers in eligible states can likely track down a variety of adjustable rate and fixed rate interest only solutions.
How Do These Loans Work?
Interest only mortgages allow you to keep your monthly payments low by only requiring the repayment of interest over a predetermined period of time. During this initial period, finances that would go towards paying down the principal on your loan are freed up to be put to use elsewhere. Many people choose these products for paying
off debts with higher interest rates, reallocating money to alternative investment vehicles or simply to allow the purchase of a higher priced home. These types of loans are also very popular in areas where real estate prices are on the rise and home owners are gaining equity without having to pay down principal. There are a wide range of interest only home loan products to choose from. These products offer many benefits and are subject to a varying degree of risk.
Possible Interest Only Home Loan Benefits:
- Lower monthly payments during the interest only window.
- Increased financial flexibility.
- Ability to purchase more expensive home.
Cons of Interest Only Financing:
- With interest only adjustable rate mortgages, not only can borrowers’ rates go up after the introductory period, but they will also have to pay off their principal balances in shorter periods of time. It can be a double whammy for borrowers who finds themselves unable to refinance at the time their IO period comes to a close.
- In a housing market where home values are falling, a borrower could quickly find themselves in a position where he or she owes more than their home is worth. And unless the government is offering some type of lifeline assistance (i.e. HARP) or a lender is feeling generous, the borrower may be stuck in their interest only loan until the housing market reverses course.
Is an Interest Only Loan Right for You?
We’re not licensed mortgage professionals but we can say that a little common sense can go a long way. If you plan on being in your home for two years and have 20% to put down, it might be a great choice. Due to how loans amortize, you’re barely going to make a dent in paying down your principal during that window. On the flip side, if you’re just looking for a way to afford a more expensive home and don’t feel confident in your ability to cover higher mortgage payments down the road, you should probably steer clear and opt for a fully amortizing fixed rate product.
Want to Find Out More? Check Out Some of the Products Below
Interest only mortgage products have become very popular since they were introduced to the public. Borrowers may be able to find 3/1 and 5/1 interest only arms and the valuable security afforded by a 30 year fixed rate interest only home loan. Every loan program has a degree of risk and interest only loans can be more risky traditional fixed rate loans. You should fully consider the risks and rewards of the programs before making a decision.
How About Researching Current Rates?
You can kick off your mortgage rate research on ForTheBestRate.com. Please note that the rates found on the tables are ForTheBestRate.com are not for interest only loan products unless specified in the product selection tool. You’ll need to contact the various lenders, brokers, banks, and credit union for more information on the programs and pricing. You may also want to visit your State’s Department of Banking website to research if interest only loans are legal in your state.