For borrowers who are not fit for a qualified mortgage, they usually look into Non-Qualified Mortgage (Non-QM) Loans. And since these are unique loans for unique situations, it pays to get to know how each one works.
Perhaps one of the most common non-QM loans in the market is the interest-only loan. True to its term, this loan lets you pay off just its interest for a set period. But there’s more to interest-only loans than that. Here are a few facts about it:Get to know more about Interest-only loans through our lenders here.
1. Lenders usually let borrowers pay the interest amount first generally between five and seven years.
2. After the interest-only period ends, you can either start paying off the principal and the interest, refinance the loan, or make a balloon payment.
3. If you choose to refinance after the interest-only period, you can refinance to the same type of loan or change it into a more stable loan.
4. Because it’s “interest-only,” the loans start out at very low rates during the initial period.
5. The initial low rates and payments make room for you to make investments, grow your extra money that could help make it easier to pay the principal once the interest-only period expires.
6. Interest-only loans could also allow a borrower to qualify for a larger amount on his/her second loan.
7. Big banks offer interest-only loans. To those who are interested, established banks like the Bank of America or Chase have this type of loan available.
8. One of its drawbacks is that a borrower might not be able to afford to pay the principal when the loan term is done.
9. Another thing is that if you’re looking to build equity with the home you purchased, the standard term period for interest-only loans might not be enough to grow your home’s value.
10. If you think you won’t reside in the property longer than the loan term, selling the house before the Interest-only period would end is possible.
In the end, interest-only loans must be carried out by interested home buyers who know how to handle this kind of loan and the risks that go with it. It also helps to ask from different lenders shop for different offers so that you can compare and see what would really work for you.Click to See the Latest Mortgage Rates»