Why Refinance into an Interest-Only Loan?
If you have an unstable income and need some extra cash on hand to address other essentials, then interest only mortgage refinance may be the best financial solution. Interest-only loans allow the borrowers to pay just the interest on the principal balance or the total amount due each month over a fixed period of time.
Alternatively, you can pay the interest along with the principal as you would choose above the minimum payment. However, if you are inclined to making interest-only payments, you will have a relatively lower monthly payment against what you would have with principal and interest included. Therefore, refinancing into an interest-only loan is a good idea.
Understand that a typical amortized mortgage monthly payment covers both the principal and the interest due. However, when you refinance your interest only mortgage, you do not contribute to the principal over the interest only period and hence the real loan is not paid off.
Benefits of Interest Only Refinance Loan:
You can repay as much principal in any given month when it comes to interest only mortgage refinance. Also, you have the option of paying only the interest as a part of the repayment of the loan. However, the interest only option can be made use of, only for a specific period of time. This advantage lies with the borrower for a fixed period of years. After the designated time period is over, the borrower will have to revert to the traditional mode of payment, with principal and the interest.
Also, interest only refinance loans are offered with a fixed rate of interest or an adjustable rate of interest.
Benefits of an Interest only Refinance Option
- Helps you loosen some money for short-term investments rather than having all the money confined in mortgage payment
- Flexibility to pay down the principal as you decide on from month to month
- Allows to save extra cash for unexpected or impending financial situations
- If you are planning to flip your home, you can refinance an interest-only loan and have the required cash for much needed home improvements
- If you are a freelance worker or a non-salaried person with an unpredictable earnings, then interest-only loans are of great help.
The flipside of interest only refinance mortgage:
The easiness of "only interest" feature is for a defined tenure only. Once the period (typically five or ten years) for interest only refinance loans terminates, you are required to make payments towards both principal and interest. You must understand that you cannot hoard much home equity in due course if you pay little or nothing on the principal and continue with interest only payments. Besides, in an unfortunate event, if the value of your home drops, then you are in a greater trouble of paying out more than your home's deserved value.
Refinancing into an interest only loan to avail super-low initial payments may seem attractive. However, weigh the potential pros and cons. If you have made an informed decision to go for interest only refinance, ensure that you are dealing with a trustworthy mortgage refinance lender. If you are not sure to find help on your own, MortgageLoanSpot as a reliable mortgage broker, can assist you in getting approved for interest-only refinance loan in minutes.
Interest Only Refinance