Interest Only Home Loans Irrespective Of Your Credit Record Or Income
An impeccable credit history is no longer necessary for the home of your dreams. A damaged credit history once ruined all hope of owning one's own home, but the recent loan programs have enabled individuals from varied backgrounds to overcome obstacles of low income, poor or limited credit history, and small or even no down payment. Of these loan programs, an interest-only mortgage may be the right choice.
What is an Interest-Only Mortgage? In the last decade, interest-only mortgage have seen a rise in their popularity, especially in rapidly growing real estate markets. While a traditional mortgage is amortized, principal and interest allocated in each monthly payment, an interest-only mortgage requires only the interest to be paid monthly for the first several years.
Contrary to the above practice, you need to pay only the interest during the initial years of availing an Interest-Only mortgage loan.
With a traditional mortgage, a monthly payment is fixed for the life of the loan, typically fifteen to thirty years. A homeowner with an interest-only mortgage may adjust their payment to include principal should income rise, or pay the minimum required interest if difficult financial times occur. At the conclusion of the interest-only term, the homeowner will need to accommodate the newly amortized payment into the household budget.
Disadvantage of an Interest-Only Loan: When the interest-only period ends, the original loan amount is still owed by the homeowner. When the homeowners begin to make the payments towards the interest and principal balance, the mortgage payments may increase by around 40%.
This mortgage increase is not affordable by many. It is not a good idea to go in for an interest-only loan if you are planning to live in your home for several years. And if you earn a good income and you are able to afford a higher mortgage, an interest-only loan can be a good choice as it has more benefits.
Another best option involves selling your home before the end of the interest-only period. If there is a significant increase in the home values in your area, you may try to capitalize from the equity. But, if the housing market shows a decline then you may be unable to sell your home.
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