As
the name implies, interest only loans offer you the option of paying
just the interest on your loan each month during an initial period
of time, or the interest plus whatever amount of your principal
you may wish to add on. Generally speaking the initial period of
time could be from three to ten years, and feature either adjustable
or fixed rates of interest. . If you are interested in lower payments
and greater control over your cash flow each month, an interest
only loan could be the ideal solution since monthly interest only
payments are lower than payments made on interest plus principal
loans.
If you plan to stay in your first home for a relatively short period
of time - say less than ten years – an interest only loan
could work to your advantage. Since the payments made during the
first several years of a mortgage are mostly interest anyway, it
might make sense to free up the extra cash you could save on paying
principal for other expenses.
Even if you are committed to owning
your home for the life of your loan, the thousands in potential
savings on principal payments during the initial loan period could
be used to pay down other high interest debt, or for higher return
investments. Keep in mind that even without paying principal, your
home will likely appreciate in value, thus ensuring you still build
home equity even during the initial period of your loan. Again,
it is important to carefully weigh your options and speak to at least 2 different lenders.
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