If you opt for interest only loan, you will have to pay the interest on the mortgage through monthly payments for a fixed term. The fixed term generally ranges from 5 years to 7 years. Once your term is over, you can go for home refinancing and making a lump sum payment. If you have decided to use interest-only home loan, the payment that you need to make will not include the payments towards the principle.
You must consider interest only loan if:-
You must consider interest only loan if:-
- You are aware that your home will be sold within a short time period.
- You desire to have lower initial payment and are fully confident that you can deal with the higher payments in future.
- You are quite certain that you will get a higher rate of return while investing the money elsewhere.
- You will have to pay the lower monthly payments during the term]
- You can qualify for a larger loan amount and then purchase a larger home
- The best part is that during the interest-only period, your whole monthly payment amount will be considered as tax deductible.
- With this loan, people usually consider spending extra money than investing it.
- Some people fail to afford the principal payments when the time actually comes
- You will actually have to pay interest and principal every month that will increase your payment significantly and it is usually considered as payment shock.
- When you prepay, it is most likely that you will have to face the penalties. If in case your loan is refinanced during the repayment penalty period, you will just end up paying the additional fees.
Thus, let’s face the fact that not everyone can make for an interest only loan. It is important to research properly in order to determine whether this loan is appropriate for the situation or not. You can then opt for other options if you find out that interest only mortgage is not right for you.
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