Could you manage an interest-only loan?
16 October 2007
(Comment On My Article)
Interest Only Loans
Incredible deal isn't it?
So incredible that it's sounds like it's not real?
So great that it allows you to free up money every month. It drops your monthly installments and you can afford WHOLE lot more house.
Now interest only loans this may be the perfect investment opportunity for those that know how to handle their finances. If you're a good personal financial advisor and you don't buy more mortgage than you can handle, I say go for it.
If you're not, I say contact a mortgage broker that offer normal home loans and don't be silly.
So what's the catch and why the advice, you may ask, well, lower monthly installments, ZERO equity for years and then BAM BAM BAM, monthly instalments to floor mother Russia.
You see interest only loans allow you to pay interest only, for a period of x years depending on the lender. The problem with this is that once those x years have passed by all those monthly payments you missed out, get added to your monthly installments once the interest portion is paid off! YOU SEE! WHOPPER OF A MONTHLY INSTALLMENT THEN KICKS IN!
Here's how it might work for a 5 year interest only loan:
• |
Your payments would be fixed for the first five years at a certain interest rate - lets say, 10%. |
| • |
For the next five years, you still might pay(depending on your options) just interest on the loan, but the rate would be variable and could increase by 1 percentage point every year, up to a rate of 15%. |
| • |
In the 11th year, the rate remains variable, but the loan requires you make both principal and interest payments. |
So the interest only loan is really for he investor who's looking for a quick in quick out option and is looking to sell his place before the 11th year or before the interest + loan payment option kicks in. Just remember though, that by choosing your interest only option, you're giving up the chance to fix yourself in with a good low interest rate and you could be kicking yourself in the teeth if you're not careful. |
