Interest Only Financing: Short-term Benefits

2007-03-08 10:33:40

( Financial )



TEMPORARY FREEDOM

Do not be deceived by the term interest only. Interest only loans mean that at the early stages of your loan, you do not make payments on the principal. In interest-only loans, you are only required to make regular payments on the interest, making your monthly bills considerably much lower. This arrangement is temporary because you must pay the principal loan after some specified time has elapsed.

As with any other type of borrowing, interest only loan come in two general types: the variable and fixed. The variable plan has your interest rates changing according to market trends, and the fixed loan charges a constant interest rate for a specific period of time, after which the loan becomes variable as well. Your monthly payments will vary accordingly with the type of interest free loan you have.

INTEREST-FREE STRATEGIES

Among several interest free loans, the two most common are the interest only mortgage loan and the interest only financing. The main attraction of an interest only mortgage loan is that it gives you the chance to own your own home with very minimal monthly payments. This works if you are about to start a family and a career. By the time that you need to make payments on the principal of your interest only mortgage loan, your salary should have increased enough to meet them.

Another good strategy to employ is to can also use the small initial monthly payments to save. You will then use money you have saved to pay a substantial chunk off your principal, thus cutting your interest only mortgage loan even smaller.

An interest only financing loan works the same way, but the loan can be used for other purposes aside from purchasing a house. An interest only financing loan can be used to fund a new car or a new business. If your income is limited at the moment, but you expect to have more cash flow in future, an interest only financing is an arrangement that you can take advantage of.


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