The housing boom in the United States has created a variety of new mortgage products. Interest only mortgages are one type of mortgage lenders are promoting to homebuyers and those refinancing their mortgages.
Interest only loans are intended to be a short-term solution to your refinancing needs. They have the potential for misuse; using an interest only mortgage for the wrong reasons could cost you thousands of dollars. You could even lose your home.
There are situations where interest only mortgages is a practical solution to your mortgage needs.
If you are in a situation where your income is sporadic and need to pay as little as possible for several years, an interest only mortgage could save you from foreclosure. An example of this could be losing your job due to injury or an extended layoff.
Investors can utilize interest only mortgages for properties they are renovating and hoping to sell at a profit. A five year interest only mortgage will allow you to secure the property with minimal cash flow.
Many homeowners used interest only mortgages to purchase their homes during the housing boom of the last several years. These mortgages allow you to purchase more home than you could normally afford with traditional financing. The problem with interest only mortgages is the principal balance is going to have to be paid back at some point. When it does the amount the monthly payment will skyrocket. If you used an interest only mortgage because you could not afford traditional financing chances are you will not be able to afford the payments when the principal balance is due and could lose your home.
When used properly, interest only mortgages can be an excellent way to lower your monthly mortgage payment and could even save your home from foreclosure. If abused, interest only mortgages have the potential to ruin your financial well-being and could even cost you your home.
Louie Latour has twenty years of experience in the mortgage industry as a mortgage broker. He is the owner of Mortgage Refinance Advisor, a mortgage resource site devoted to saving homeowners money with a free guidebook “Five Things You Need to Know Before Refinancing a Mortgage.” http://www.refiadvisor.com
