Interest-Only The Pros and Cons: Home Loans and Home Equity Lines of Credit
By M. Nyce
Interest-only home loans are ones where you pay only interest for the first 5, 10 or even 15 years of the loan, significantly lowering mortgage payments during the first few years. Home equity lines of credit have been increasing in popularity because the mortgage lender only requires the borrower to make an interest only payment that tends to be less than the standard principal and interest payment.
Interest-only mortgage loans:
- Offer lower mortgage payments during the first few years than conventional mortgages, because initially you're only paying interest.
- Provide more purchase power to buy a higher-priced home than you could otherwise afford.
- Can help you avoid foreclosure.
- Frees up your cash flow for debt consolidation or other investments.
- Can be a way of investing in a rising real estate market.
On the other hand, interest-only loans:
- Require you to repay the entire outstanding principal in a shorter period of time, resulting in higher monthly payments.
- Could cause you to owe more on your home than it's worth if the house declines in value during the interest-only period of your loan.
Interest only loans are not just for purchase loans. Many people refinance with interest-only loans to avoid foreclosure and sometimes for debt consolidation. There are also several varieties of interest-only home equity loans (second mortgages). These work in a similar way as those offered for first mortgages, including lower payments for affordability during the first few years of the loan.
Maria writes loan articles for banking institutions across the country. Get fast home equity rate quotes at Interest Only Second Mortgages. For more loan advice go to Home Equity Lines of Credit and Home Equity Loan Rates.