Interest only advantages

An interest only loan is a loan where you only pay the interest that is due each month. Your principle balance always remains the same. One advantage of an interet only loan is that your monthly payment will be lower, since you aren't paying down the balance at all. This gives you more cashflow each month and allows you to manage your finances more efectively.

Although you aren't required to pay down the balance of your loan with an interest only loan, you still have that option. You can choose to pay more each month if you would like to pay the loan off faster. A competent loan officer should be able to tell you how much extra to pay each month in order to pay off the loan by a certain time. You can choose to pay any amount that is greater than the interest payment.

The advantage of the interest only payments is the monthly savings compared to an amortizing payment (principal and interest). The basic premise is that in the first 5-10 years of a mortgage you hardly pay any of the principal down to build equity. In most cases the vast majority of equity comes from the increased market value of the home and not the principal balance being decreased by amortized payments

If you are currently having trouble qualifying for a mortgage because your debt to income ratio (DTI) is to high, an interest only loan may be able to help you get your new mortgage. Since the payments are less, your DTI will be lower and it could be enough to qualify you for your new mortgage.

An interest only loan may allow you to buy another property or two if you are trying to become or you are a real estate investor. By lowering your monthly payments you may be able to qualify for more properties with the lower debt ratios that the interest only loans may provide. Interest only loans are great for real estate investors and for purchasing a second home, especially in areas with high appreciation.

If you live in an area that is appreciating quickly, an interest only loan allows you to reduce your monthly payment. The appreciation will build equity in your home even if you don't pay down any principle.

An advantage of interest only loans is you get to decide how to spend that money every month to benefit you most. Perhaps you want to pay it toward higher rate credit cards. Perhaps you want to pay off your car loan sooner. Perhaps you want the option every month of paying it toward your mortgage or not. Your choice!

An interest only loans payment will decrease as the principal balance is payed off.

If your home is an income producing property, payments on an interest only mortgage may be fully covered by the rental income, thereby allowing you to own the property without making out of pocket mortgage payments.

Interest only loans are available with various terms. The interest only period may be anywhere between 5 and 30 years. The longer the interest only rate is fixed, the higher the rate.

» DISCLAIMER: The information contained in this article on 'Interest only advantages' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.