By Darren Meade
As of late, more and more people are opting for �interest-only loans�. But they are actually only appropriate for a small group of borrowers. And in some cases, they can be the equivalent of �financial death�.
Here is what you will learn in this article:
� What is an interest-only mortgage?
� How to know if you are a candidate for an interest-only loan
� Common Interest-Only Loan Myths
� How to determine if you qualify for an interest-only loan Is an interest�only loan right for you? Find out by reading the full report below.
What is an interest-only mortgage?
An interest-only mortgage is a special type of mortgage loan which allows you the option of only making payments on the interest each month. If you have an interest-only loan, you are not required to pay principal and interest every month, as you are with a traditional mortgage loan. You have the right to choose to only pay interest. Usually, the option to pay interest-only lasts for a specified period, usually 5 to 10 years.
WARNING: If you choose to pay only interest every month, you will never pay down your loan balance and your original loan amount will remain unpaid. (Example - if you obtain a $125,000 mortgage loan and pay only interest and no principal for the first 10 years, your loan balance will still be $125,000 at the end of year 10.)
How to Determine if an Interest-Only Loan is Right for You
The first question you need to ask yourself is this: �Am I disciplined enough to pay into a quality investment when I�m not required to?� If the answer is no, an interest only loan may not be right for you.
Many borrowers opt for an interest only loan to be able to afford a home they would not otherwise be able to afford with a traditional mortgage. We advise against this practice. Only purchase a home if you can afford to pay a full interest and principal payment every month. The consequences of purchasing more home than you can afford can be serious.
An interest-only loan may be right for you if you have a fluctuating income and need the flexibility of paying interest-only when you are strapped for cash. Consultants and other professionals love interest-only loans for this reason.
Additionally, an interest-only loan is great for people who want to invest the money that would have otherwise been paid toward principal into a higher-yielding investment. For this to succeed, your return on investment must exceed the mortgage interest rate on your interest-only loan. Common Interest-Only Loan Myths
Myth #1 � Interest only loans don�t require mortgage insurance
Interest-only loans having a down payment of 20% or less require mortgage insurance in many cases. Some interest only loans are insured by the lender as opposed to a traditional mortgage insurance company. This means that you will pay for the insurance, but it will come in the form of a slightly higher interest rate. Make sure you ask the lender if, and how, your loan is being insured.
Myth #2 � Interest-Only Loans amortize faster than regular loans
Interest-only loans amortize no faster than a traditional loan. There is no magic connected to amortizing an interest-only loan. A borrower who takes an interest-only option but decides to make the full payment instead, will amortize their loan in exactly the same way as the borrower who chooses a traditional mortgage loan...
Do YOU qualify for an Interest-Only Loan?
Did you know that most people can easily qualify for an interest-only mortgage loan?
Darren Meade is a local and national Real Estate Finance Expert. He provide two FREE educational websites to Home Buyer and Sellers. http://www.freemortgageinformationsoutherncalifornia.com http://www.freerealestatesecretssoutherncalifornia.com
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