Interest
Only Home Loan
Are you interested in buying a home, but want "more
house" than you can presently afford? Many mortgage lenders
use your current income to calculate what payments you can
make, and therefore, the size of the loan they are willing
to approve. But if you are at the start of your career, your
income will likely increase as the years go by. So what can
you do? Wait a few years until your paycheck matches your
dream home? In the meantime, you're probably paying rent--money
that you could use to invest in your own home. Plus, interest
rates may climb in the interim, meaning you'll pay more in
the long run.
Another option is to consider taking out an interest only
home loan, which can increase your purchasing power while
lowering your initial payments. An interest only home loan
is unique, in that you are only paying the interest on your
loan for a fixed amount of time. For example, for a 30 year
loan, that period of time may be five years. For the first
60 months of the loan, you are merely paying off the interest
at a fixed rate. This payment is much lower than that of a
traditional mortgage.
After the 60 months go by, your payments will change--you
will then start paying off the balance as well as the interest.
Your interest will also switch from a fixed to an adjustable
rate. However, your margin of adjustment will still be tied
to your original interest rate--the one you established five
years prior. This is an advantage if interest rates have gone
up over time--your overall rate should still be lower.
Is An Interest Only Home Loan in Your Best Interest?
Another great thing about an interest only home loan is that
you can start paying off the principal right away if you so
choose. You can generally pay up to 20 percent of your balance
over any 12 month period without risk of penalty. In short,
you don't have to dream about the house you really want--an
interest only home loan can help you buy the home you want
today, with lower starting payments.
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