There are several opinions out today regarding these relatively new “Interest Only” loans, and, in the right circumstance they can be a great deal.

Simply put, all you do is take the loan amount multiply by the interest note rate and divide by 12. That is to say, that a loan for $250,000.00 x, say 6.5% = $16,250.00 divided by 12 months = a monthly house payment of $1,250.00. This does not include the monthly pro-ration of your property taxes or homeowner’s insurance.

The good news is that you will probably be able to afford a higher priced house with nicer amenities. The bad news is that you will not be reducing your debt on a monthly basis.

The Interest Only loan will permit you to make the interest payment for a period of 5 or 10 years and then the loan will be re-amortized over the balance of the 30 year term to include both principal and interest in the payments.

Many borrowers opt for this type of loan with plans to make periodic principal payments, at their discretion, or they intend to refinance the home toward the end of the interest only period. Since most of your equity will come from appreciation as opposed to principal reduction, at the time of refinance your home will, most likely, be worth more and your income will, hopefully, have increased over the past 5 years.

Another consideration is that people typically move every 5 to 7 years so struggling to make a principal payment every month, can add extra stress to any situation, especially when most of your equity gain at sale or refinance will be from appreciation.

The most important thing is to “Get in the Game”. You can’t participate in the appreciation of real estate if you don’t get in the game and purchase a home.

Give me a call and I can quickly tell you what the current interest rate is and how much your payment will be. Call Becca for the listings in the area you like and together we will help you purchase and finance your new home.