Interest only real estate loan
Interest only real estate loans are those loans that are provided for purchase of real estate and in which borrower is required to pay only interest in first initial years of loan. Interest only real estate loans are very popular among real estate investors and interest only period generally provided varies from 3-10 years. Since borrower is required to make interest only payments, he can easily afford monthly payments without any fear of defaulting. In present times, when real estate prices as well as interest rates have gone quite low, many investors are cashing out opportunity through interest only real estate loans and are likely to reap good benefits in coming few years.
It should be understood here that after an interest only 5-10 year term is over, borrower is required to pay interest as well as principal amount in remaining loan term. In other words, it can be said that loan amount is amortized over remaining loan term. For example, if a person has taken an interest only real estate loans for a period of 30 years with 5 year interest only period, he is required to make interest payments for 5 years and after this period, principal and interest amount is amortized over 25 years.
Many people have found these loans very useful in making good money as they intend to sell property purchased through loan at the end of interest only period. However, there is great element of risk attached too. If real estate prices go down or when borrower is not able to sell the property after the expiry of interest only period, he has to make regular payments for repaying the loan and if repayment schedule is not adhered to, he may loose his property. Another risk attached with interest only real estate loans is rise in the interest rates. If interest rates rise abnormally and real estate is not sold due to any reason, monthly payment amount can become very hefty. Thus, interest only real estate loans are one of best options for those people who wish to sell the real estate quickly.
Real estate prices have become somewhat stable after a crash in past few years and are likely to rise from there. An investor may take risk of buying real estate through above loans and may book good profit in coming 3-4 years. There are some areas in which real estate prices have shown good increase and investors have taken interest only real estate loans for buying such properties in good numbers.
At the end of interest only period, a person can choose from different options. First of all, he can pay the increased payment. Increased here means payment towards principal as well as interest. In cases, where people wish to keep the real estate for long term, they have to pay the increased amount. Some people, who expect increase in their salaries or income in coming years, take above loans for buying real estate and keeping the same for longer duration. These people make increased payments through income or salary hike and successfully complete the loan term. Other option available is refinance. In fact, refinance is the best option available if interest rates have fallen to further lower levels at the end of interest only period.
However, there are certain issues that must be taken care of while getting refinance loan. First is the prepayment penalty. If existing mortgage lender applies high prepayment penalty, it may wipe off the gains made and refinance may prove futile. Secondly, if closing costs applied by refinancing lender are very high, there is no use going for refinancing loan. In cases, where a person is not able to afford the increased payments at all, he can go for another interest only refinance loan for deferring the payment of principal amount for another 3-10 years. Third and last option available is selling of property. If real estate had been bought for resale purpose and if real estate prices are at good level, a person can sell the property for repaying complete loan amount. He can sit with profit made and can wait for another opportunity for buying investment property through interest only real estate loans.
Interest only real estate loans have proved very useful in making savings in first initial years and utilizing same towards other requirements. A person can easily meet the education or wedding expenses or can purchase car from the savings made. For example, if a person has taken an interest only loan of $100000 at 7%, his savings made as compared to conventional mortgage loans is $984 in one year. In 10 years, he can save $9840 and this amount can be utilized for any purpose.
Interest only real estate loans are among the best options available for those people who are likely to get negative cash flow in initial period.
Other important aspect that must be understood here is that with interest only real estate loans, a person can afford bigger loan amounts. For example if a person qualifies for a conventional mortgage loan of $500000 on basis of his income, he can easily qualify for $600000 or even larger amounts in interest only loans. This allows him in buying 20% more investment real estate. Profits made are also increased by good percentage. However, he must be ready to sell the property or repay the loan amount at the interest only period.
During the interest only term, there is no accrual or increase in the equity a person has in the real estate. This is because there is no repayment in the principal amount. If real estate prices go considerably low, a person may have to provide more collateral for securing the principal amount. In traditional mortgage, on other hand, a person builds up good equity and same can be used for getting home equity loans etc.
Interest only real estate loans are good option for people who work on commission basis and thus, have irregular income. They can save amount in interest only period and same can be utilized for making repayment or for other investments.
Finding lender for above loans is easy. This can be done online. Loan Biz Inc is one source that can help a person in getting interest only real estate loans. A person can call loan counselor at this center at 800-746-6509. Similarly, mortgages-expo.com is another source offering above loans. A person can find lowest rates loans and can apply for same also. It can be called at 800-881-5764.
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