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Taken Out an Interest-Only Loan? Do Not Worry!

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Taken Out an Interest-Only Loan? Do Not Worry!

admin January 28, 2014

Taking out an interest-only home loan might seem like the best solution when you are planning to purchase a new house and do not have enough money to make the down payment or if you happen to possess a bad credit rating. The Financial Conduct Authority (FCA) of the UK considers interest-only mortgage as a possible headache to borrowers and it has been found that there are about 2.6 million interest-only loans that are due to be paid back by the year 2014 at Realisticloans.com.

Also, around 48 percent of those borrowers seem to be short of the overall amount that they will have to repay during the due date. This may sound terrifying, but if you approach it a bit more carefully, you will come to know that it is not such a big deal after all. The most common issue when it comes to financial products is that all of those are confusing and complicated and that borrowers are hence completely dependent on salesmen who are usually commission-driven, when they need to decide whether or not to buy a particular product.

When Can You Take Out an Interest-Only Mortgage?

An interest-only mortgage can be the right choice for you if:

  • your earning is mostly in the form of random bonuses or commissions,
  • you are anticipating to earn quite a lot than your current income, in a few years, and
  • you will definitely save the money you obtain from the difference between an amortization loan and an interest-only loan, and are pretty sure that this investment would earn you money.

In general, financial advisors do not recommend interest-only loans for those individuals who earn regular wages and take out medium-sized home loans, without any type of strategy to invest their savings.

When you take out an interest-only loan, all you will be required to pay on a monthly basis is the interest associated with the mortgage, for a fixed term period. After this fixed period, which will usually range between five and seven years, you can choose from three options: pay back the balance amount in the form of lump sum, choose to refinance, or begin to pay off the principal amount, which will usually cause the payments to be elevated.

Benefits of Interest-Only Loans

Following are some of the major benefits you would enjoy by taking out an interest-only loan:

  • Lesser Payments in the Beginning: Every interest-only mortgage loan usually begins with lesser payments to be made by the borrower. The principal amount of most loans will be amortized to be paid back steadily throughout the term period of the personal loans for people with bad credit. In case of interest-only loans, amortization does not happen until the loan’s second period.

Larger Loan Amount: When you apply for a conventional mortgage loan, the loan amount you would be eligible to obtain will usually depend on the maximum amount of payment you would be able to make on a monthly basis, which will be substantiated by your debt and income. In case of an interest-only loan, the total loan amount you would be able to obtain will be inversely proportional to your initial loan payments, i.e., smaller your initial loan payments, larger will be the loan amount you would receive.


Abhishek is a professional writer, blogger, and editor of Author Land based in Delhi, India. He has been writing for SEO, SMO, Social Media, Search Engine, Small Business etc topics on www.authorland.net, Visit authorland.net to get tips that really work for Search Engine, Social Media & Small Business.

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