Interst Only Home Loan Reviews

Interst Only Home Loan...

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With all the changes in the financial world people are starting to look at alternative options when purchasing or refinancing their home. In particular people are considering more and more interestonly home loans and mortgages.

That's why we've created this website. Hopefully you will find it useful for your research. Please explore our site and the links to provide you with the information you need.

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Refinancing of interest only loans simply means swapping one loan for another. It is an effective way to decrease the debt on existing loans. This is especially beneficial if the current interest rates are lower than the interest rates you are presently paying on the loan. Refinancing would enable you to convert your high interest debt into a low interest debt, as the amount of monthly payment would decrease. The extra money saved can be reinvested in something more lucrative like real estate or shares, or to pay off high-interest debts like credit cards. Refinancing is also done for converting an adjustable rate mortgage into a fixed rate mortgage. Refinancing has become so common in recent years that almost three quarters of new mortgages were refinanced loans in 2003.

Refinancing of interest only loans is very attractive, especially when the time comes for the loan to get amortized. That means the loan will have to be repaid at the current interest rate, along with the principle. Most people seek to refinance their interest only loan in order to buy more time, i.e. to delay the repayment of the principle further. However, this may also increase the risk on the loan, since the interest rates may go up further, the price of the house may come down or the economy may slump in the future.

Refinancing of interest only loans is ideal for people who are expecting huge capital gains in the next few years or are planning to sell their house by the time the interest-only period is over. This is a good alternative as long as the economy is good, the interest rates are steady and the prices of houses are increasing. Interest only refinancing is recommended for people who have irregular incomes like commissions or bonuses or those who are expecting a hike in their income in the coming years. The savings accrued from refinancing can also be used for home improvement, which will increase the value of the home in the future.

A few questions to be considered while refinancing are: how long do you expect to stay in the house? How much equity do you have in the house? Will you have to pay points for getting a low rate from the refinance? What would be the closing costs? Will the lower payments from the refinance enable you to cover the closing costs, points (if any) and the fees reasonably?

There are several lenders who are offering refinance options for interest only loans. The Internet is a good source for getting information about these offers and also to find out more about interest only loan refinance

An interest only payment is one where a a borrower pays only the interest due on a loan.

No payment is made to pay off the principal of the loan. The interest only payment is lower than a regular loan. When only an interest payment is made the loan balance remains the same.

When you purchase a property you build equity on it in two ways:

rise in property value
paying the loan off

A 30 year loan takes 30 years to pay off. Your equity this way is built up very slowly over time. This is the part you can control.

One the other side is the market value of your property. You do not control this end.

If the property value has increased by 10% in one year, and you have a regular 30 year loan on the property nearly all of your increase in equity has come from the rise in the property. Very little of the equity has been made by paying your mortgage down slightly.

For this reason many real estate buyers and investors choose to have interest only mortgages.

Figuring Out An Interest Only Payment

Your interest only payment is easy to figure out.

Multiply your loan amount by the annual interest rate. This is your total annual interest payment. Divide this number by twelve to get your monthly payment.

For example, a $120,000 loan with a 10% interest only payment has:

an annual interest expense of $12,000
a monthly interest expense of $1,000

You will notice that the loan term does not factor in here at all. It doesn't matter if the loan term is 5 years or 30 years, since you are paying only the interest on it.

There are many free mortgage calculators available online to help you figure this out.

Quite commonly property investors get offered 'interest only loans' and it all sounds a good idea at the outset but there are factors relating to interest only loans that a property investor needs to be aware of as well when using them as part of their property investment strategies. In actual fact an interest only loan can be, under the right circumstances, a very good way to get your foot in the door when property investing.

What is an Interest Only Loan?

It is a loan where only the interest is expected to be repaid each time with no principal/capital reduction.

Commonly these loans are only set up for a short period of time, say 3 - 5 years.

Such a loan could be part of a split loan where interest and principal is paid for 1/2 the loan and the other half is interest only. Thus some principal is being paid off the equity as well as having reduced repayments.

Why would you take on an interest only loan?

This strategy is often used when an investor wants to purchase a property, but at the same time keep their repayments as low as they can without taking a loan for an overly long period of time which is another strategy for reducing a loan repayment. By only having to pay the interest each repayment the amount is considerably smaller.

If an investor buys a property and the rent is not going to be sufficient to cover the outgoings of the property they may well decide to do interest only so that the short fall is not so great.

Interest only loan where there is positive cash flow.

In a case where the property will have positive cash flow even with an interest and principal loan, an investor may decide to go with an interest only loan because they have sufficient equity to purchase another property and want to keep their repayments as low as possible during the first few years of owning the properties.

Why? An investor may be offered or find an exceptionally well priced property and want to add it to the portfolio but keep the repayments on the portfolio as low as possible in the initial years.

It could well be that the investor is just wanting to keep the repayments low, but there are other possible scenarios too and following is one situation that may be the reason for taking on an interest only loan.

Using lower repayments to upgrade a property.

A property may be purchased that has excellent investment potential but does need a bit of an upgrade in the short term. There could be repairs to the property or properties and by having lower repayments the positive cash flow can be used to do repairs or upgrade the properties. The improvements will most likely have the effect of increasing the equity in the property.

When the investor then goes to refinance at the end of the interest only loan period, the property is that much more valuable because of the repairs and upgrades done with the positive cash flow funds.

Risks of interest only loans.

Property investors need to understand the risks of interest only loans before they commit themselves into this style of loan when building their property investment portfolio.

Interest only loans seem so attractive with the lower loan repayments but there is a risk so make sure that you understand how it could impact your investment.

- You purchase a property at $110,000 with no down payment because you have equity in other property

- You set up an interest only loan

- All is going well then property prices start to slip so instead of owning a property at $110,000 value it is now worth $95,000

What could happen is that with the lower value in the property you are most likely going to be asked by your financier to pay sufficient monies on to the loan to bring it in to a neutral or positive value situation.

If you cannot do this the bank is going to sell the property. This comes about because you have not being paying down the principal as you have been making your repayments.

This is the risk of interest only loans and is a situation to be very aware of when considering this option.

It is not so risky when you have sufficient equity behind you, or cash in the bank, but if you do not it could put an investor in a difficult situation, therefore it could be or have been better to purchase a cheaper more affordable property at the outset.

Build your property portfolio slowly and surely, check out the various property investment finance options available to you and decide whether an interest only loan is for you or if you should choose another altogether, or combine it and have two different types of loans working for you when you set up your property investment finance.

For anyone to upgrade their business, they will require some sort of finance to help them with it. Usually businesses that need to buy property or office buildings to grow do not have all the capital required to do so. This is why most of them get money for these upgrades from commercial mortgage lenders.

There are many types of commercial mortgage loans that are offered these days, making it easier for you to find a loan type that will suit your requirements best. But as of now we are going to go over interest only mortgage loans.

An interest only mortgage, as the name suggests, is a loan type that allows a borrower to make payments that consists only of the interest. The borrower is given the option to pay only interest for a certain period of time. Usually the interest only period is for the first few years, but borrowers are allowed to pay back parts of the principal if they have the money to do so.

Interest only mortgage loans are not suitable for every kind of borrower. It should be only used if you have a proper reason to pay the interest at first. This is suitable for people who have incomes that are not stable. When they do not have enough money to pay principal and interest, they have the option of paying just the interest. When they do get enough money they can pay back as much principal as they like.
In the event that you get an excess in income, and want to use that money to generate more wealth, then this is a good loan type for you. You can use the excess cash to make an investment and generate more money instead of using it for principal repayment. But while doing this you must make sure that your returns on the investment exceed the interest rate.
If your business is trying to rapidly increase the amount of property they own in order to increase capital, interest only mortgage loans will allow you to minimize the initial payment so that you have the necessary funds to buy the extra property.

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