GetSmart.com Shares Tips to Ensure Consumers are Prepared Before Choosing an Interest-Only Mortgage

Interest only loans come in many forms so make sure you know the facts before getting this type of mortgage.

Charlotte, N.C. (PRWEB) June 14, 2007 -- Consumers who are interested in owning a home for just a few years before selling, those whose income has temporarily dropped but is expected to rebound, or those who expect to quickly fix up and "flip" a property are all ideal candidates for interest-only mortgages. These mortgages offer smaller payments in the early stage because homeowners are only repaying the interest portion of their loan.

Keep in mind with an interest only mortgage, higher mortgage payments will kick in at some point during the repayment life of the loan but in the meantime, this type of loan can offer a buyer flexibility. Most interest-only mortgages offer a five to 10 year window of lower payments before the higher payment amounts kick in.

And to keep those higher payment amounts from ever kicking in, many lenders advise homeowners to refinance their interest-only mortgage with a traditional fixed-rate mortgage before the interest-only period expires. The sooner a homeowner refinances, the smaller the payments are likely to be given that the homeowner would begin repaying some of the principal.

The downside to interest-only mortgages include:

No equity
Buyers are not building equity in their homes during the initial years of interest-only repayment. That means they cannot use their home as collateral to obtain a low-interest home equity loan or line of credit.

Difficulty refinancing
If you aren't able to afford the higher payments once the interest-only period expires - or refinance before that point - you could lose your home.

While an interest-only loan may be appealing because of the flexibility it offers, please note that nothing is free. Paying smaller amounts on the front end of a loan means that eventually higher amounts will kick in on the back end. Interest only loans come in many forms so consumers need to educate themselves before agreeing to the terms of this type of home loan.

About GetSmart®
GetSmart is a leading financial services marketplace that offers borrowers access to a range of home loan products such as mortgages and refinance loans, home equity loans and lines of credit from a network of more than 250 lenders. Consumers who visit the site at www.getsmart.com of call 1-800-GETSMART complete a short and simple form and will then be matched with up to five competing lenders.

GetSmart is owned by LendingTree, LLC, which is an operating company of IAC.

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