Interest only loans are an intellectual preference especially in the short term. Interest only loans are not considered to be a long-term option. Generally speaking, five to seven years is considered to be the average time spent in one home before selling or refinancing and the interest only loan only needs to cover this period. You can afford more of a house because the lower initial payments allow you to opt for a larger loan. You can use the money you save on making investments, paying bills or making expansion to your house. Moreover, you can take advantage of lower rates without having to refinance and can more easily qualify for this type of loan.
Interest only loans can also be risky. In times of falling property prices you could be forced to sell your house for a loss if the sale price is less than the principal still owing on the loan. This is known as negative equity. In the right situation and for the right person interest only loans can be a very useful option. For a low-cost, short term property investment the benefits can easily outweigh the disadvantages.
However if an interest only loan is the only way you can afford to get started in your new home, it might be worth reconsidering your options and waiting just a little bit longer.
Interest-only home loans are usually a good choice if you think you’re going to stay in the house for many years, if the interest rates are expected to go down or if you think you will be earning a lot more money in the future. As with any other loan, it’s up to you to inform yourself of the benefits and drawbacks of this kind of mortgage. You may want to get a local mortgage broker who will guide you to the best possible type of loan depending on your individual financial circumstances.