Home Mortgage Loans For People With Bad Credit - Pro's And Con's Of Interest-Only Loans
Written by: Carrie Reeder
Buying a home with poor credit is just as easy as buying a home
with perfect credit. Years ago, many people with a low credit
rating believed homeownership was unattainable. Fortunately,
there are various loan programs designed to help people with low
income, bad credit, and no down payment purchase a house.
Included among these programs are interest-only loans.
What are Interest-Only Mortgage Loans?
Interest-only mortgage loans became popular in the early 2000's.
The concept of interest-only loans is very unique. Ordinarily,
monthly mortgage payments consist of a portion of the payment
being applied to the principal balance, and a portion applied to
the interest. In order to payoff a mortgage in 15 or 30 years, a
specific amount of money must be paid each month.
On the other hand, if you obtain an interest-only mortgage loan,
you pay only the interest for the first few years. Interest-only
periods vary. Homeowners may opt for a three, five, seven, or
ten year interest-only loan. After the interest-only period
ends, the homeowner must begin making payments toward the
principal and interest.
Why is an Interest-Only Loan Beneficial?
If you live in a booming housing market, an interest-only loan
may be your only option for buying a home. Many are attracted to
these loans because the initial mortgage payments are low. For
example, a $200,000 conventional loan has a monthly payment of
about $1200. With an interest-only loan, the mortgage would be
about $800 a month. Hence, if you are buying in an overpriced
market, affordable living is within reach.
Pitfall of an Interest-Only Loan
Once the interest-only period ends, you still owe the original
loan amount. When homeowners begin making payments towards the
interest and principal balance, mortgage payments may increase
40%. Most homeowners are unable to afford a mortgage increase.
If you plan on living in your home for several years, an
interest-only loan may not be a good option. On the other hand,
if you earn a sizeable income and can afford a higher mortgage,
you may benefit from this type of loan.
Another option involves selling your home before the
interest-only period ends. If home values in your area have
increased significantly, you may capitalize from the equity.
However, if the housing market takes a nosedive and home values
decline, you may be unable to sell your home.
About the author:
Visit ABC Loan Guide for advice about mo
rtgage loans for people with bad credit.
Return to Home