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Better
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Interest Rate Police: Interest Only Mortgages, Debt Consolidation, Foreclosure, Bankruptcy
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REFINANCING CENTER : Interest Only
Mortgages
Interest Only Mortgages are a popular option for home buyers who want to keep their mortgage payments low for a designated period of time. With Interest Only Mortgages, borrowers make payments on the interest that accrues each month. Because each payment goes toward interest, the outstanding balance of the loan does not decline with each payment.
Interest Only Mortgages are typically set for a short period of time, such as five years. At the end of the Interest Only period, monthly loan repayments then increase to the fully amortizing level. When the Interest Only terms are up, some borrowers can choose to renew the Interest Only period or to refinance their home loan using the equity the home may have built through rising home prices during the Interest Only period.
Why Take Out an Interest-Only Mortgage?
| Get Into the Market
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| With housing prices so high, many first time home buyers cannot afford to get into the market. For some, Interest Only mortgages provide the only option would-be buyers have for purchasing a home. Interest Only payments are lower, which reduces the ratio of housing expense to income. This is the ratio that lenders use to qualify borrowers. |
| Bet on the Future
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| Small business owners and individuals starting out in their careers may choose to “bet on the future” in the expectation that once the Interest Only terms are over, their incomes will have risen enough to make the higher, fully amortized interest + principle payments. |
| Flexible Payments
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| Borrowers with fluctuating incomes (e.g., bonuses & commission) value the flexibility that Interest Only mortgages can provide. When money is tight, borrowers can make the lower Interest Only payment, and when they have more income they can make payments on the interest and the principal. |
| Increasing Home Values |
| Home buyers in highly desirable, growing markets may make an assessment that they expect their home’s value will increase by the time the Interest Only terms expire. Once the Interest Only terms are up, these borrowers can choose to refinance, using their home equity to secure a lower monthly payment on a more traditional loan.
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2005 Interest Rate Police.
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