When An Interest Only Loan Makes Sense
You likely have heard of all of the horror stories associated with interest only mortgage loans: homeowners slammed by high monthly mortgage payments when the interest only period comes to an end. In many of these cases, the homeowners knew about the later payment increase, but they didn't have the funds on hand to handle the increase when it came.
In so many of these situations, the homes were lost to foreclosure as owners quickly fell behind on their monthly payments. However, an interest only loan can work to your advantage if you know how to play the game. Keep reading and we'll take a look at how an interest only loan can work for you.
Buy Now, Sell Soon - If you know that you will only be in a home for a short period of time, let's say about three years and the interest only loan is for five years, in a rising market you could end up with a home that is worth more but cost you less in mortgage payments than a standard mortgage.
Sure, your principle remains the same and it will be subtracted from the selling price, but you realized a profit on a home you likely would not have been able to afford with a standard mortgage.
Buy Now, Refinance Later - To avoid the later jump in mortgage payments you could refinance your home and lock into a loan with a fixed rate. You may still have another 30 years to pay off the house, but your financial condition probably has improved through job promotions and a larger salary.
So, a more expensive fixed rate mortgage could be affordable for you.
Buy Now, Hold - Then again, you could accept the interest only loan's bump up in payment amounts simply because you were prepared for it to happen. Perhaps you did what you should have been doing all along: anticipating and preparing for the increase.
If you did, then a jump in payments of $400 or $500 per month won't be the sting it is for those who either did not prepare or who financial picture changed for the worse since closing.
Naturally, if a better mortgage deal comes along, then refinancing an interest only loan is not only advisable but financially it makes the most sense. Why hold onto a higher rate mortgage when a lower rate could save you money over the long run?
In so many of these situations, the homes were lost to foreclosure as owners quickly fell behind on their monthly payments. However, an interest only loan can work to your advantage if you know how to play the game. Keep reading and we'll take a look at how an interest only loan can work for you.
Buy Now, Sell Soon - If you know that you will only be in a home for a short period of time, let's say about three years and the interest only loan is for five years, in a rising market you could end up with a home that is worth more but cost you less in mortgage payments than a standard mortgage.
Sure, your principle remains the same and it will be subtracted from the selling price, but you realized a profit on a home you likely would not have been able to afford with a standard mortgage.
Buy Now, Refinance Later - To avoid the later jump in mortgage payments you could refinance your home and lock into a loan with a fixed rate. You may still have another 30 years to pay off the house, but your financial condition probably has improved through job promotions and a larger salary.
So, a more expensive fixed rate mortgage could be affordable for you.
Buy Now, Hold - Then again, you could accept the interest only loan's bump up in payment amounts simply because you were prepared for it to happen. Perhaps you did what you should have been doing all along: anticipating and preparing for the increase.
If you did, then a jump in payments of $400 or $500 per month won't be the sting it is for those who either did not prepare or who financial picture changed for the worse since closing.
Naturally, if a better mortgage deal comes along, then refinancing an interest only loan is not only advisable but financially it makes the most sense. Why hold onto a higher rate mortgage when a lower rate could save you money over the long run?