Some loans called interest-only loans are fairly popular and account for a major share of housing markets in San Diego, Atlanta, San Francisco and many other cities.

What does interest-only loan mean?
The borrower pays only the interest for a fixed period which might range from 2-10 years. So, he doesn’t have to pay up for the principal for this period of time which he can utilise for other purposes like bigger down payments or furnishing the home or other investments. After the fixed period is over the loan becomes like the normal mortgage loan - interest + part of the principal. The payments may go up by more than 50 percent after the adjustment.

This type of loan may sound attractive to many borrowers especially the lower payments initially but you need to really decide if it is really suited to your situation. It is only suited for individuals and families who know how to manage their money well and can invest the money in instruments that bring in better returns than interest rate you are paying. It may not be suited for instance if you need to make these higher payments when you children are starting college. It may put an unneccessarily bigger financial burden on you when you have other committments.

Learn every detail about this loan option before committing to it. Remember this loan is only best suited for people with a great sense of financial discipline.

This entry was posted on Saturday, December 17th, 2005 at 4:03 pm and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.