Interest Only loans

Interest Only Loans

Best Interest-Only Loans
Interest-Only Loans Benefits

What Are Interest-Only Loans?

When you take out a traditional loan, the monthly payments that you make go toward both your loan balance and interest costs. If you keep up with interest charges, you will gradually pay down the debt you owe.

An interest-only loan is where your payments only go toward the interest on the loan. None of the money you pay goes toward your overall loan balance or principal. It allows people to have lower monthly due amounts over a fixed period.

You do need to pay the entire loan off, either by making a lump sum payment, or you can increase your monthly payments to include money that will go toward the principal.

How Do Interest-Only Loans Work?

Interest-only loans typically cost less monthly than a traditional loan structure. The payments are less because none of what you pay goes toward paying off the principal on the loan. The loan is not amortized, which means that you do not pay down any of the original loan amount.

The monthly payment for an interest-only loan can be calculated by multiplying the loan amount by the interest rate you receive. Then, you divide that sum by 12 months.

Interest-only loans are not meant to last forever. There are several ways that you can repay them according to the structure of your loan. Some options are:

  • You can convert to an amortizing loan to begin to pay off the principals
  • Making a lump sum or balloon payment at the end of the specified loan period
  • Pay it off by refinancing and getting another loan.

Compare Interest-Only Loans Rates

There are many different types of non-QM loans, one of which is an interest-only loan. What is an interest-only loan? It is a loan where you only have to pay down the interest. Interest-only loan rates are typically a bit higher than your traditional loans. The reason that interest-only loan rates tend to be higher is that they involve more risk. But the higher interest-only loan rates are a great resource to use when a traditional loan will not work for you.

By taking out an interest-only loan, you can purchase the home of your dreams now and then start to pay it down later. It is a good tool to ensure that you don’t miss the opportunity of being a homeowner in the here and now. There will be a time in the future to start to pay down the loan, but an interest-only loan just helps you realize your dream now!

Advantages of Interest-Only Loans

  • You can purchase more expensive property than you might otherwise be able to.
  • Costs tend to be lower
  • It frees up your cash flow

Disadvantages of Interest-Only Loans

  • Risk of being upside down on your loan.
  • They are only meant to be temporary
  • Negative amortization.
  • No equity.