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Interest Only Home Loans Pros and Cons

If you are looking for a loan that will allow you to pay only the interest on the borrowed money, then interest only home loans may be the right choice for you. However, the benefit of lower monthly payments brings certain risks too, so make sure you understand both the advantages and disadvantages of interest only loans before applying for one.

Interest Only Home Loans Pros

One of the benefits of choosing an interest only loan is that due to thee smaller monthly payments you will have some additional free money on hand for applying them for other purposes (such as investing).

Some people also select interest only loans because they want to maintain smaller monthly obligations in their budget. For example, you may not have a fixed income and may not be able to afford larger monthly payments. Thus by choosing an interest only loan you can make payments covering only the interest now and make the bigger payments when you receive the expected additional remuneration in terms of commissions and bonuses.

Finally, interest only loans are good if you want to set your own amortization schedule.

Interest Only Home Loan Cons

Interest only home loans have their negative sides as well.

The major disadvantage is that you fail to build equity on your home. The balance on the loan remains the same, since you have selected to pay the interest only. Thus, you are not putting down the loan, but just servicing it.

Additionally, if your home loses value and you decide to sell it, you may have to pay some additional money to cover the balance since your money has been going only against the interest and not against the principal.

Finally, sooner or later you will be required to pay the whole mortgage, not only the interest on it. Some people select to do refinancing so that they pay back the loan when the time comes. You should know exactly when and how you are going to return the principal on your loan and when the interest only term will end.

If you decide to take advantage of the benefits of interest only loans, take a look at their disadvantages as well.

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