INTEREST ONLY LOAN
An Interest Only loan is a mortgage loan where during a specific period of time, the borrower may decide to pay only the interest part of the loan. The period for an Interest Only loan is usually five to ten years. During the interest-only years, the loan balance will not decrease unless the borrower makes additional payments towards principal. After the interest-only years are over, some people refinance their homes, others make a lump sum payment, and some begin paying off the principal of the loan.
The option is flexible and you may also choose to pay the interest and part of the principal. The flexibility of this mortgage allows the borrower to adjust his mortgage cost on a monthly basis, giving him more control over your monthly cash flow.
Who Should Consider an Interest Only Loan?
A borrower may consider an interest only mortgage if they
- Want the initial payment to be lower and they know that they can deal with a large payment increase in the future
- Have large commissions and bonuses added to their income.
- Expect increases in their income in few years.
- Have solid investment plan.
- Know that the home will need to be sold within a short time period.
- Are certain they can get a higher rate of return investing the money elsewhere.
WAYS OF REPAYING
The following are suggested ways you can use to repay your interest only loan
- Cashed saved in savings account
- Regular saving plans
- Other properties and assets
- Investment bonds
- Monthly payments are low during the interest-only period.
- Placing extra money into investments to build net worth.
- During the interest-only period, the whole amount of the monthly payment qualifies as tax-deductible.
- The borrower can purchase a larger home later by qualifying for a larger loan amount.