What are Interest Only Loans?
Interest only loans are a type of mortgage wherein you only pay interest on the principal amount. Since the borrower has to pay only the interest, interest payments remain consistent throughout the term of the loan.
This type of home loan programs is apt for first time home buyers because they can put off hefty payments for a later period. Interest only loan is also good for people who want to buy expensive homes, but do not have sufficient cash for it.
What are the benefits of getting an Interest Only Loan?
Interest only loans have a lot of benefits; first being that you only have to pay the interest contrary to traditional mortgages where high monthly payments have to be made on the mortgage.
When you think you are ready and have enough savings, you can pay off the principal amount of the mortgage. Interest only loan makes it easy to own a home when you can’t afford it. Of course, you have to pay off the principal amount on the mortgage eventually.
For young people who do not have high income can buy a home with the help of this home loan program. With interest only mortgage, they have low monthly payment and can utilize the money for other purposes.
With interest only home loan program, you can set your own amortization schedule. When the interest-only term ends, you can either renew the interest only mortgage or repay by taking out a traditional mortgage.
Who qualifies for an Interest Only Loan?
To qualify for an interest only loan, you need to evaluate if you can afford the home you are eyeing for. Even though, you will be only paying interest for a fixed term, you still need to prove to your lender that you can afford a home. Bad creditors are always seen as a risk, while a good credit history is always helpful when getting an interest only mortgage.
Down payment for mortgages has increased over the years. It is essential to assess the down payment requirements for interest only home loan program before you get one. Even big players in the field like Fannie Mae has increased its down payment for interest only mortgage to 30%.
In order to get the best rates for interest only mortgage, look around. Do your research, compare and contrast before zeroing in on a lender for your interest only loan.