| Have you been looking into the prospect of buying a | | | | If you are an investor, the interest only mortgage loans |
| home? If you have, you may have heard about | | | | allow you to keep more cash flow to make home |
| interest only mortgage loans and may be wondering if | | | | improvements in anticipation of selling or just to keep |
| getting an interest only loan is the right option for you. | | | | more of your money in your pocket if you are |
| What exactly are interest only mortgage loans? As | | | | interested in selling the property relatively quickly. |
| the name implies, this type of mortgage is set up so | | | | There are disadvantages to interest only mortgage |
| that the borrower (you) pays only on the interest of | | | | loans, as well, however. The major disadvantage is |
| the loan rather than applying part of the payment to | | | | that it is more risky to the borrower. With more |
| interest and part to principal. Of course, this is not done | | | | traditional financing, you are building equity in your |
| for the entire life of the loan. When the mortgage is | | | | house right from the very start, albeit not a lot at first, |
| set up, the interest only payment is set up for a set | | | | as even with traditional loans, the majority of your |
| number of years only. | | | | payments go toward interest in the beginning. With |
| Once that set number of years is up, the borrower | | | | interest only mortgage loans, however, you are building |
| "trades in" his interest only mortgage loan for a more | | | | absolutely no equity. Equity comes from paying down |
| traditional one in which he begins to pay down the | | | | the principal, and since you are not paying any principal, |
| principal balance as well. Typically, interest only | | | | you are not building any equity. |
| mortgage loans are set up with payments being | | | | What is the problem with not building any equity? Well, |
| applied to interest only for the first ten years, and then | | | | you are running the risk of not being able to afford the |
| the loan is changed. | | | | higher payments when the interest only years come to |
| The reason that many folks have been interested in | | | | a close, as these payments will likely be higher than |
| interest only mortgage loans is that they allow the | | | | they would have been with a different loan. So, if your |
| borrower to have a much lower payment for those | | | | career does not bring in the kind of money you |
| first ten years. Since you are not paying any principal, | | | | expected, you may find yourself unable to meet the |
| the resulting payment is lower than it would be with | | | | payment. Also, you may be unable to sell the house |
| more conventional financing. If you are buying the | | | | when you are ready to sell if that particular period of |
| house as a home and anticipate having an increased | | | | time is a buyer's market. Too, you will be unable to get |
| income as time goes on, you may be able to qualify | | | | a home equity loan (refinance) because refinancing is |
| for the interest only mortgage loan because of this | | | | based on the equity in your home, and with interest |
| lower payment that reduces your debt-to-income ratio. | | | | only mortgage loans, you build no equity. |