Refinancing or buying a home with interest only mortgage is a pretty new thing. While the appeal of an interest only mortgage is typically a greater monthly cash flow, this increased cash flow can come with a hefty price tag. In turn, the homeowner won't be able to get a fixed rate mortgage nor build equity. Read on to know more about this interest only mortgage.
Increased Monthly Cash Flow
This is the only major advantage a homeowner will get from interest only mortgages. Homeowners who re-finance by utilizing an interest only mortgage will likely have more money available each month because they will only be paying interest on their mortgage initially. The reduction of the principal payment can make it easier for the homeowner to either afford a larger house or have the ability to live more extravagantly on their budget. Keep in mind that there are also some risks when you go with these options.
While interest only loans may not be ideal, they can be beneficial in the situation where the homeowner is having a great deal fulfilling his monthly obligations. This means that the homeowner would have to lose money in the end for him to pay his monthly dues on time.
What You Don't Know About ARM
Adjustable rate mortgage or ARM usually comes along with interest only loans, which involve an unfixed interest rate. This can cost the homeowner much if the interest rate was to rise. There is a limit, but this limit is in percentage, so it could still be a lot of money.
An interest only loan with no ARM is better in certain scenarios. For example if the homeowner has a hybrid mortgage which features a fixed interest rate during the interest only portion and an ARM during the principal and interest portion of the loan they might benefit from this situation if they do not plan to stay in the home for longer than the interest only period. This period may vary depending on the lender and the circumstances. Homeowners who plan to sell the house before the interest only period ends and the ARM period begins enjoy the benefits of lower monthly payments and the security of fixed interest rates before they ever have to worry about repaying the principal or dealing with the varying interest rates.
Absence of Equity
The homeowners are at a disadvantage when it comes to building equity in their homes during the interest only period. This is not a good thing for those homeowners who wish to get a profit from selling their homes. These homeowners may find the participation in an interest only re-finance has had a damaging effect on the profit they are able to generate from the resale of their home.
Increased Monthly Cash Flow
This is the only major advantage a homeowner will get from interest only mortgages. Homeowners who re-finance by utilizing an interest only mortgage will likely have more money available each month because they will only be paying interest on their mortgage initially. The reduction of the principal payment can make it easier for the homeowner to either afford a larger house or have the ability to live more extravagantly on their budget. Keep in mind that there are also some risks when you go with these options.
While interest only loans may not be ideal, they can be beneficial in the situation where the homeowner is having a great deal fulfilling his monthly obligations. This means that the homeowner would have to lose money in the end for him to pay his monthly dues on time.
What You Don't Know About ARM
Adjustable rate mortgage or ARM usually comes along with interest only loans, which involve an unfixed interest rate. This can cost the homeowner much if the interest rate was to rise. There is a limit, but this limit is in percentage, so it could still be a lot of money.
An interest only loan with no ARM is better in certain scenarios. For example if the homeowner has a hybrid mortgage which features a fixed interest rate during the interest only portion and an ARM during the principal and interest portion of the loan they might benefit from this situation if they do not plan to stay in the home for longer than the interest only period. This period may vary depending on the lender and the circumstances. Homeowners who plan to sell the house before the interest only period ends and the ARM period begins enjoy the benefits of lower monthly payments and the security of fixed interest rates before they ever have to worry about repaying the principal or dealing with the varying interest rates.
Absence of Equity
The homeowners are at a disadvantage when it comes to building equity in their homes during the interest only period. This is not a good thing for those homeowners who wish to get a profit from selling their homes. These homeowners may find the participation in an interest only re-finance has had a damaging effect on the profit they are able to generate from the resale of their home.
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