Refinance and 1st Mortgage Loans

A Primer on Interest Only Loans.

Interest Only Loan: This is what you should know!

An Interest only loan allows you to pay only interest for a fixed period of time usually the first 5 to 10 years of the loan, thus resulting in a lower monthly payment. After the Interest only period has expired, you have the remainder of the term to repay all of the principal, plus interest. Remember that you can still put money toward the principal during the Interest only period, but make sure interest is recalculated on the new balance.

Interest only loan: The benefits of this loan?

• Lower monthly payments than a traditional mortgage for the first few years, and
• Additional purchasing power, and
• Since mortgage interest payments are generally tax deductible, you may be able to deduct 100% of your monthly payment at tax time (consult your tax advisor to see if you are eligible).

Interest only loan: The major drawbacks of this loan?

• At the end of the interest only loan period the payments will be much higher than if you had initially taken out a traditional mortgage, and
• During the interest only loan period, you will build equity only if the value of the home increases, and
• If your home or the housing market you’re in loses value, you could end up owing more than the house is worth.

Interes Only Loan: This type of financing is most suited for you if:

• You expect to earn a lot more money in a few years, or
• You expect to receive a large amount of money at some time in the future that could be used to reduce the principal on your mortgage, or
• You invest the money you would have paid as equity and your investment returns exceed the rate of home appreciation.