Texas Interest Only Loans

Interest-only loans in Texas are still around. Even though they are not as popular as they once were, they do still exist.
 
Over the past few years, they have been the topic of conversation. Many homeowners were placed into these programs without being told exactly what type of program that it is or without completely understanding them when they agreed to them. There are certainly benefits of Interest Only Loans when purchasing a home or refinancing, but there are also risks associated with them. 
 
* Please note that this product is available to anyone that qualifies but personally, I only recommend this program for someone that has a fixed monthly income with a potential of receiving a monthly or quarterly bonus. Or, someone that is paid on commission only.
 
Here are just a few of the benefits of interest-only loans:
 
– Smaller interest-only payments give borrowers with uneven income a greater degree of flexibility. The savings generated from interest-only loans versus traditional mortgages give borrowers greater control over their finances, freeing up more money for use in investments or catching up on other bills.
– Smaller monthly payments during the initial interest-only term allows borrowers to afford more home for the same amount of money, or less. Depending on your income, this could mean an increase to your purchasing power by $5,000-$30,000.
– Interest-only payments made during the initial loan term are entirely tax deductible.
 

The risks of interest-only loans:
 
– If home prices fall, borrowers could end up owing more money on a home than it’s actually worth. Unless the borrower makes payments against the principal, the home builds no equity aside from annual appreciation.
– After the initial interest-only period, the principal balance can cause monthly payments to skyrocket, especially if interest rates have increased.
– The minimum monthly payment option (available on some interest-only loans) doesn’t cover the total interest accrued for a given month.  The difference is tacked onto the balance, increasing the principal balance, which results in negative amortization. A negative amortization can erode existing equity already built in a home.
Understanding some of the benefits and risks associated with interest-only loans is imperative when searching for a mortgage that fits your needs.  If you’re looking into refinancing your mortgage or considering buying a home, you need a professional who will take the time to identify your financial goals, and who has the experience and the resources to help you achieve them.
 
Do not move forward with a Loan Originator that is trying to fit you into a specific loan program without telling you the pros and cons of that program. Ask questions to understand your mortgage options and why one program may be better than nother. There are many programs and options available, but not all of them will help you achieve your financial goals.
Advertisements