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None of the monthly payments paid during this term go towards paying up the principal amount. At the end of the interest only term, the borrower can opt for different repayment options that include mortgage refinance, balloon payment or else paying off the principal in the form of monthly mortgage payments. However, borrowers can also opt of repayment of principal during the middle of the interest only term depending on their availability of funds.
Advantages Of Interest Only Home Loan :
The foremost advantage of this concept is that the borrower is required to pay very low amounts towards mortgage payments during the interest period. Interest only loans are an ideal loan solution for certain categories of people.
- Borrowers with fluctuating incomes such as marketing executives are the ones that mostly opt for these types of loans. These people have a moderate salary. Their primary source of income is from the commissions and bonuses, a substantial amount that comes once or twice in a year. This can be used for repayment of the principal. During the rest of the year, they can make just the interest payments.
- People expecting a higher income in the coming years can opt for this type of loan so as to fulfill their dream of owning a home. Once the income increases, repayment towards the principal can start.
- Customers who are capable of making substantial extra payments periodically can opt for interest-only loans. Extra payments results in a reduced monthly payment in the following month.
- This type of loan is suitable when the borrower has other high interest loans. The difference in the amount can be used for speedy repayment of first mortgage loan. Once the high-interest loan is repaid, repayment of the second mortgage can be planned.
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