There is a loan product aptly known as an 'Interest Only Mortgage.' This type of loan or mortgage is available as either a fixed-rate-mortgage (FRM for short) or as an adjustable-rate-mortgage (ARM for short.) This version of a mortgage allows the home owner to pay just the interest due on the mortgage on a monthly basis for a set amount of time, i.e. 3, 5, 7, or 10 years. At the end of this time period, the loan balance will be same as when the loan was taken out - principle will not have been reduced.
After the initial term, the loan becomes 'amortized' (complete) and monthly payments will generally increase. The longer the initial term, the higher the new payments may be. However, at this time, the home owner will have the opportunity to refinance their loan to a new, current rate. Interest only mortgages certainly have their advantages. Another thing to remember, most people have better credit than they think, usually Fair Credit or better, keep this in mind while filling out our online form. When contacted by us, kindly ask our loan professional any question you may have. They will be more than happy to assist you in making sure an interest only mortgage is best for you. Remember, all loans don't fit all people; if you need a mortgage loan, we'll find the right one for you.
The disadvantages to this type of loan are obvious; but as with any decision, the good may outweigh the bad. Here are some advantages and disadvantages to consider about an interest-only mortgage, according to bankrate.com:
The London Inter-Bank Offered Rate (LIBOR) is the basis for a LIBOR indexed interest-only-mortgage loan, says Investopedia.com. The rate plus parts of a percentage point determines the interest only payment amount on a loan balance. Note: the margin does not change with any length of loan.
There are also 30 year fixed rate loans, with 10 and 15 year fixed rate interest only terms. The first ten or fifteen years is interest only, then the payments increase because the loan becomes fully amortized for the remaining length of the loan. Most lenders will let you make payments on the principal during this time if you so choose.
When applying for a loan, you may be offered either type of loan: interest only or standard. Consider your options wisely. Whatever you decide to do, Peak Home Loans can help you obtain the financing you need for your dream home. We can help with fair, good or excellent credit situations, and can get you the best rates and terms. Peak Home Loans is here to help.
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