home loans – mortgage refinance second mortage

Brian Jenkins asked:


An alternative form of mortgage that has been seeing a growing popularity in recent years, the interest only mortgage loan allows a borrower to pay only the interest on the money that they borrow for a specified period of time. Once that time period has expired, the full loan amount is due; this allows many borrowers to save up money for the mortgage payment during the initial payment period without having to struggle to meet a large payment amount every month. These loans can be very useful for those who are on an infrequent or irregular pay schedule, especially when they will be seeing a larger influx of money at a later date from investments or large surges in income. These loans are not for everyone, but provided that you are fully informed about how the loans work you may find that they are exactly what you have been looking for.

Interest only mortgage loans can be very useful when you are trying to purchase a house or other property but will not be able to afford full mortgage payments at this time. Since you are only paying the interest on the principal amount that you borrow instead of making payments for both the interest and the principal, the amount of each payment is going to be significantly lower. When the total amount finally becomes due, you will have to pay only the principal because you have been taking care of the interest as it was accrued. With most interest only mortgage loans, this will give you between five and seven years to save up the money that you need or to make investments that will pay off the principal amount once it becomes due.

This is not to say that paying off your interest only mortgage loan is your only option when the final loan amount becomes due, of course; most lenders will offer you the option to refinance the remainder of your loan for an additional term, in some cases changing both the term and the interest rate on the refinanced loan so that you can get a better deal when repaying the original mortgage amount. Some borrowers will take advantage of this in order to refinance the principal into a more standard mortgage type, using the time that they were paying only the interest on their original loan to save up enough money to be able to better meet the full payments that go with a traditional mortgage.

A number of lenders will allow you to make payments on the principal when it comes due instead of having to pay the entire amount at once, though it is important that this is negotiated beforehand so that you do not expect to be able to make payments when they are not offered. This is not without its drawbacks, of course, since the interest rate that is charged on these payments will generally be higher than what was being charged when you were only paying the interest. Even if the interest rate does not change, you will still have a significantly higher amount to pay each month since you are paying against principal as well as having to keep up with the interest that is being applied to your balance each month.

Many people who are in the process of advancing in their careers find interest only mortgage loans very appealing, since it lets them save money now while they’re still working their way up the corporate ladder. By the time that the principal amount becomes due or they have to refinance, there is a good chance that these same individuals will be making significantly more money than they were when the loan was first taken out. This can be especially useful if the loan features a fixed interest rate, since that will allow these borrowers to keep the same rate even as they receive cost-of-living increases on top of any raises or other advances that they might receive as they advance their careers. This is a great option since the interest stays at a fixed amount allowing you to pay that first.

Not everyone will see the same benefit from interest only mortgage loans, of course. For those who have steady but moderate incomes, the savings from an interest only mortgage loan may not be enough to cover the full amount of the principal when it becomes due. These individuals may be better served by a more standard mortgage loan, or will need to plan in advance to refinance the loan once the interest only period expires. Should one of these individuals still be interested in an interest only mortgage, their mortgage lender may be willing to work with them to develop a refinancing plan so that they will already have an idea of exactly how they should refinance their loan when that time arrives.



EARLE