Interest Only Loans
Interest only loans serve one basic function, to give you the lowest payment. These loans only require you pay the interest owed on the loan each month; no principal is needed to be paid.
Consumers typically will take these loans to either save themselves money per month or enable them to buy a bigger house. Since they are only paying interest they can get qualified for a larger loan.
Remember though that the principal isn’t being paid down. So after 2 or 3 years of payments that mortgage balance is still the same as it was when you took the loan. Therefore if your long term goal is to stay in your home and pay it off then of course an interest only loan isn’t the right loan for you.
If you plan on selling or refinancing within a few years than an interest only loan could save you a great deal of money over those few years. Just make sure you fully understand the type of loan you are obtaining. How long does the interest only period last? When do you begin to pay down the loan? How long is the loan repayment period? These are a few questions you want to answer.
