When You Should Choose an Interest-only Loan
The IO loan has become very popular in recent times. Despite it's popularity, not everyone is right for an IO loan. In this article, we'll look at a few factors you can consider when thinking about an IO-loan.
If you're anticipating an increase in income, an IO-loan is great for you. It gives you the chance to pay a lower monthly payment now, but you know that when the payments eventually get higher, you can afford it because of your higher income. If you're in this situation, go for an Interest-only loan.
If your income has ups and downs, an IO loan an also be a good option for you. It gives you the possibility to pay the minimum in months were you're income is on the low side and pay more when you're having a good month. One of the advantages of an Interest-only loan is the fact that you can pay off principle without a penalty. Be sure to pay off principle in good times, or you may be hammered with higher payments when your Interest-only loan ends.
A lot of first-time home buyers make the choice for an IO-loan because they can afford a higher mortgage amount with this mortgage option. The smart way of doing this is buying a starter house, wait until it rises in value and then sell it for a profit. The mortgage gets paid off and the profit can be used to buy a bigger house with a 'regular' mortgage.
An IO-loan has many advantages, but only if you have the financial discipline that is needed. You have to keep in mind that you should pay off the principle whenever you can. If you decide to spend the money on something else, this will come back to bite you when your Interest-only loan ends.
If you're anticipating an increase in income, an IO-loan is great for you. It gives you the chance to pay a lower monthly payment now, but you know that when the payments eventually get higher, you can afford it because of your higher income. If you're in this situation, go for an Interest-only loan.
If your income has ups and downs, an IO loan an also be a good option for you. It gives you the possibility to pay the minimum in months were you're income is on the low side and pay more when you're having a good month. One of the advantages of an Interest-only loan is the fact that you can pay off principle without a penalty. Be sure to pay off principle in good times, or you may be hammered with higher payments when your Interest-only loan ends.
A lot of first-time home buyers make the choice for an IO-loan because they can afford a higher mortgage amount with this mortgage option. The smart way of doing this is buying a starter house, wait until it rises in value and then sell it for a profit. The mortgage gets paid off and the profit can be used to buy a bigger house with a 'regular' mortgage.
An IO-loan has many advantages, but only if you have the financial discipline that is needed. You have to keep in mind that you should pay off the principle whenever you can. If you decide to spend the money on something else, this will come back to bite you when your Interest-only loan ends.
About the Author:
WIC is an institution that writes about financial matters. They also write articles about mini lening and snel geld lenen in Dutch.
posted by Credit Counseling at
11:33 AM
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