Archive for the ‘Residential Property’ Category
Interest Only Home Loans
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You might have heard about the interest only home loans from the TV, radio, or newspaper ads. Your first comment about it is that its too good to be true, and it most probably is with media hype promotions making it sound more like a scam. But actually, minus the driven promotion, it actually exists and works. Curious? So what is it really all about?
Traditional home loans usually have fixed or variable rates for repayment of interest. They usually require a borrower to pay a certain interest and then the principal amount in staggered repayments monthly until the loan period expires. Their only difference is just how much the borrower has to pay in a monthly basis. What if there is an interest rate that only requires you to pay the interest rate monthly in an initial period?
Yes, interest only home loans sounds promising for those who would want to borrow a larger amount than what they can qualify for. This means you can up the price of the loan you normally could not afford with other type of home loans; instead of $100,000 loan you can have as much as $200,000. How is this possible? A term called teaser rate entailing a very low low starting payment is the answer. This is because for the first few years, all you will be paying is the interest rate without any principal amount in your monthly repayments of the home loan. You can save a lot of money during this time and might use it for another purpose. And when you have earned enough to repay your mortgage usually three to seven years for this type, then you can be free of your mortgage obligations. After that set period of time, you will be paying the possible higher interest rate together with the principal amount for your monthly mortgage obligations.
These are for people who has liquid money for other investments that will surely be lucrative or people who are certain to increase their income in a few years – people who can afford higher monthly mortgage repayments in the long run of the loan period. If you are only planning to stay around three years in your home, then you can also opt for this type of interest rate. You can save more money in the short stay you will be having but make sure you do not extend staying longer or you could risk loosing your home in the end. Also, if you have ended your loan period in this type of home loan, and your home has dramatically lost its market value during selling or refinance, you might find yourself owing more than your market appraisal.
These are the risks that usually come with this type of home loan and it could cost you your home and a lot more if you are not careful. The best advice in availing interest only home loans is to stick with what you can afford and make maximum use of the savings you make during the initial period of low repayments so you can come up with cash during the onset of the interest and principal repayments period.
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