subject: Basic Info On Refinancing With An Interest Only Mortgage [print this page] If you plan to file an application for refinancing, one alternative is interest only mortgages. This is comparatively a new option in the refinancing sector and even in the home buying sector. To determine whether it is the right alternative for you or not, you have to understand the basic underlying facts about interest only mortgages. Here is a short guide on refinancing through interest only mortgages.
1)More disposable income
The main advantage of interest only mortgage rests on the capability of many homeowners to gain better upper hand in their monthly cash flow. Refinancing under this option allows homeowners access to a greater level of disposable funds since they are at the outset committed to settle just the interest on their mortgage. Without the principal payment to concern about initially, homeowners can afford a bigger house.
Although the interest only mortgage may not emerge as the best choice, this proves to be advantageous to homeowners in fulfilling monthly obligations regularly without running the risk of getting in default payments.
2)Uncertainties pose by variable rate mortgage
Interest only mortgage is commonly extended with a variable rate mortgage. This means that the interest rate hinges on the current market rate. If the rate declines, this is a positive note to borrowers. However, if the rate significantly goes up this turns more burdensome to the homeowners concerned.
However, there are cases which indicate that refinancing under interest only mortgage with variable mortgage rate is a good proposition. Its plus factor becomes more pronounced when a hybrid mortgage is accessed with a fixed interest rate during the interest payment term only and variable mortgage rate for the duration of the principal and interest of the loan portion. The homeowner concerned may benefit if the plan is to stay in the house shorter than the term of the interest period.
3)Absence of home equity
If there is one drawback of the interest only mortgage, it is the restriction to homeowners to accummulate their respective home equity if if settlement is only confined to loan interest. Profit generation as a result of the sale of the house will later pose a problem to homeowners.
Refinancing with an interest only mortgage comes with both advantages and disadvatages. To work in your favor, this scheme must be taken into account with your requirements, actual situationer and your future plans.
