In today’s hot real estate market interest only loans are becoming ever popular. Loan officers are pushing these loans to the consumer because of their ease for reducing the purchaser’s payment. With home prices going through the roof, the price of homes has quickly risen making it difficult for the home purchasers to find a mortgage loan that is affordable.
The difference between incomes and home prices has opened the door for lenders to invent creative ways to help home buyers afford more home than in the past. The ever more popular interest only loan is being used quite often. There are a number of loan programs out there, make sure that you understand the terms of the loan you choose.
With an interest only loan the home purchaser is only paying the interest of the loan amount, false benefit is that home purchaser is your paying less for a mortgage. In all reality if the principal of the home is not receiving any payments, the home owner is not building equity in the home. If the housing market stagnates for one reason or another and the appraised value of the home has not increased significantly. When the interest only loan is at the end of the interest only period, the monthly mortgage will increase to a standard amortized mortgage loan over the remaining years of the loan. The mortgage amount could double or even triple in size, making the loan unaffordable to the purchaser.