Interest Only Loan

Interest only loan is the loan offer for paying only the interest due each month for a specified term period. Payment will be far lower than typical loan. But there is one obvious disadvantage of the loan which is the interest paid does not build any equity of the home and the principal amount does not decrease.

Most of this loan type allow borrower to pay interest only for the first 3 to 10 years. After the period, all remaining amount will be amortized schedule for the remaining years of the loan and your payments increase. The interest rate will be reset to a higher side to increase the principal amount.

However, this type of loan is suitable for self-discipline sale persons. They can place additional fund as payment to the loan when receiving a lump sum bonuses or incentives. Borrower also can apply any windfall funds (tax refund money, for example) to the mortgage to gain equity.

If you feel that you are not happy with this option, you may just treat it as typical loan. Repay the exact amount (or higher), you will notice that the principal amount decrease significantly.

You may also use the biweekly payment strategy to reduce the principal amount faster. Apply half amount of the loan every 2 weeks, 26 times a years (equal to 13 months of installment). This strategy may shorten few years of the loan term.

If determined to take this loan type, you must have a proper repayment plan. Fully understand how the loan work before meet with the loan lender.

For more information about other loans, please check out Various Loans Guide instead of Interest Only Loan

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