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Home Loan Interest Only - Facts about a Home Loan for Interest Only - Who can benefit from a home loan interest only?

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A home loan interest only is known as an interest-only loan, and it is perfect for anyone who needs to have the freedom to make lower monthly payments during the first few years they have their loan. A home loan interest only allows borrowers to pay off just the interest on their loan early in the life of the loan. Usually this option lasts for the first five or 10 years of the loan. Borrowers can also choose to pay part of the principal as they are able to.

Who can benefit from a home loan interest only?

The most common reason people opt for a home loan interest only is because they plan to stay in their home for less than 10 years. However, there are other reasons home buyers might choose this type of loan. Borrowers whose income changes from month to month can find the flexibility of payments to be very helpful, especially if they are still early in their career and they expect to be making a lot more money after about five or 10 years in their career. Of course this does require a lot of personal responsibility because it is up to the home buyer to make additional payments on the principal of the mortgage when they have the extra funds to be able to do so.

Some home buyers also find it helpful to invest the extra money they would be spending on the principal every month. However, this method of making money can be very risky, and borrowers have to be sure that the rate of return on their investment will be more than the amount of money they will be earning on equity in their home.

Another benefit from getting a home loan interest only is the fact that you will be able to buy a lot more house than what you could afford with a traditional loan. The monthly payments are lower because the home buyer is paying on just the interest of the loan, and any money that would otherwise have gone toward the principal is not required to be paid in. This type of loan may be a good option for families who know they will want to live in a smaller home for about five years and then trade up. With an interest-only home loan, they can simply skip the trading up part and move straight to the larger home.

A home loan interest only myth

One myth that many people believe about interest-only home loans is that they are not building any equity in their home if they choose this option. While it is possible for this to be true, it is not always the case. In real estate markets where homes are appreciating in value, home owners may find themselves building equity simply by owning a home, even if they are not paying anything toward the principal.

What happens after the interest-only part of the home loan ends?

A home loan interest only is different than a traditional 30-year mortgage because its term is typically five to 10 years, and during those five to 10 years, the borrower may be paying only on the interest part of the loan. At the end of this short term, the borrower can choose to refinance his loan or start paying on the principal. However, if the borrower chooses to start paying on the principal, he must be aware that the monthly payments will jump sky high.

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