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Interest Only Loans

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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