Friday, July 13, 2012

The Interest-Only Loan

By Allyson Westcot


Of the basic types of loans available to home purchasers, an interest only mortgage loan might be the cheapest at the beginning. Because this type of loan only insists that you pay the interest on the loan each month for a specific period of time, it may turn out to be an affordable option at first.

Nevertheless, do not be tricked by those low, interest-only payments in the beginning if there is a chance you won't be able to afford the bigger payments later on. If you're looking at one of the condos or new houses for sale Spokane has to offer, don't let your need for a great home convince you to buy more home than you can actually afford.

One gigantic perk of an interest-only loan is that the first couple of years of the loan can paid on an interest-only basis. No payment is required to go towards the principle. Lower payments frequently mean that a young family can get a home on reduced payments, and get the new home they want without spending all their money on the loan.

The terms of such a contract will vary depending on your present position and your bank. But in the case of a 30-year mortgage, which isn't rare, the 1st 5 years could be interest only payments. Then the mortgage is reset when the interest-only time runs out. This will generally result in a huge increase in the dollar amount of the monthly payment, and unfortunately some people aren't prepared for that.

An interest only mortgage may be excellent for a family who wants the lower payments now, but knows it will be able to deal with the larger payments later. Someone in a job which will clearly become much more lucrative in 1 or 2 years, or a family in which a spouse will be going back to work after the birth of a child or other situation, might find this kind of loan ideal.




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