Facts About Interest Only Loans

2007-03-08 10:33:40

( Financial )



An interest only loan is a type of financing where you only pay the principal amount of your debt at end of the term of your loan. The monthly payments of this type of loan are mainly composed of interest. Thus, at the end of your interest only loan term - provided you have not missed any interest payments - you will repay the same sum that you borrowed at the start of the loan. The major difference of interest only mortgage loans from other type of financing is the composition of their monthly payouts. In other types of loans, the monthly payments are aimed at reducing the principal amount of the loan plus interest.

People Who Can Take On Interest Only Loans

It is advisable to take on such loans only if you are expecting to get a huge sum of money in the future, such as bonuses or commissions. Experienced investors are also ideal to secure such loans because they would know which investment vehicles would help them raise enough money to pay off the principal amount of their debt on time.

Advantages of Interest Only Mortgage Loans

The key benefit of an interest only loan is its low monthly payments. Compared to other types of financing, the monthly payouts of such loans are significantly lower because you only pay the interest. The entitlement to write off interest paid to your interest only loan is another advantage of this type of debt.

Main Disadvantage of Interest Only Loans

The downside of this type of loan is the high price you have to pay for not being able to pay your debt on time.

Important Tips

Before you get an interest only loan you should first consider if you will be able to pay the principal amount of your debt on time. There are many online interest only mortgage loan calculator that could help with your computations.

There are many loan providers so do shop for the best interest only mortgage loans. Be sure to compare the interest only mortgage rates that are available in the market.


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