The Pros and Cons of Florida Interest Only Mortgages
Florida interest only mortgages, like other types of mortgages, have advantages and disadvantages. It is important to weigh out the pros and cons before deciding, but be careful that you don’t mistake a short term advantage as a long term solution. Here are some of the important facts to know when considering a Florida interest only home loan.
How Does an Interest Only Loan Work?
Interest only loans allow you to only make payments on the interest accrued each month. By doing this, your payments stay low and more affordable. You are allowed to make these interest only payments for a period of five to ten years.
At the end of the interest only period, you either begin to make normal payments or you can pay the loan off. Many people choose to refinance to another type of home loan when their financial circumstances change.
Florida interest only mortgages allow you to borrow more money so you can afford the size of home that you need. Because you only have to pay the interest on the loan for a certain period of time, your payments are much lower than a traditional loan. These lower payments are also great if your income is lower or if it fluctuates. Basically, it gives you more flexibility to fit the loan payments more comfortably into your budget.
Cons
However, there is a down side. During the interest only time, you are not accruing any equity. All of the money that you are paying is going directly to the interest. Consequently, at the end of this time, you will still owe the entire amount of the loan.
Interest only loans are usually adjustable rate loans, which means the rate goes up and down according to fluctuations in the prime rate. This can be both good and bad. If the rate begins low, chances are it will get higher. Then your payments will increase and it may become less affordable.
How to Make the Most of Your Interest Only Loan
There are some ways that you can make Florida interest only mortgages work even more to your advantage. Make sure that when (and if) you can pay extra money toward your loan, you do. And be sure that you specify that the extra money is to be applied directly to the principle of the loan. This will allow you to reduce the principle and build some equity.
Another way to make the most of an interest only home loan is to pay it off when your circumstances change. This could be with your own funds, or by refinancing to a more advantageous type of loan.
Don’t Forget
Florida interest only mortgages allow many people to own their own home who may not be able to afford traditional payments right off. But this type of loan is only best used as a relatively short term solution. Since you are not building any equity, you are also not taking full advantage of owning your own home. Use it while you need it, but refinance as soon as it is feasible for you to do so.
Comments
Sorry, the comment form is closed at this time.
No comments yet.