Interest only home loans allow your monthly payment to be just
the amount of interest due on your mortgage. Many lenders are
advertising these loans today and for some home owners they may
be a wise decision. However, you should think long and hard
before deciding an interest only home loan is right for you.
Why interest only? Interest only home loans may be
appropriate for a person who earns a lot of income through
commissions or bonuses. If a buyer believes that his/her income
will be significantly larger in the future an interest only loan
might also make sense. An interest only home loan could work
well for the home owner who really invests or saves the money
not spent on a house payment.
The advantages - A home buyer may be able to purchase a
larger home. The borrower can still deduct the interest from
his/her taxes. The money not spent on the principal payment can
be invested or saved.
The pitfalls - Interest only home loans are for a
specific and generally short duration. At the end of that time
the buyer will be expected to pay off the loan, to begin making
conventional payments or to refinance the loan. The home is not
building equity. A slump in home prices can make the mortgage
due more than the value of the home. If the income or credit of
the buyer deteriorates he/she may not be able to pay the
mortgage off or refinance the loan.
Although tantalizing, interest only home loans are for a select
few home buyers.
Disclaimer: This information is provided with the understanding that the
authors and publishers are not providing legal or financial advice.
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accuracy of the information respresented on the website. The content
provided on this website is based on information available at the time
of publication. ABC Loan Guide does not presume to advise people about
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