Home Mortgage Loans For People With Bad Credit - Pro's And Con'sOf Interest-Only Loans

Buying a home with poor credit is as easy as buying a home with perfect credit. Years ago, many people with low credit rating believed homeownership was unattainable. Fortunately, there are several loan programs designed to help people with low incomes, bad credit and no down payment to purchase a home. Among these programs are single-rate loans. What are interest only mortgages? Interest only mortgage loans became popular in the early months of 2000. The concept of interest only loans is very unique. Usually, the monthly payments consist of a part of the payments shall be applied to the principal balance, and a portion applied interest. In order to payoff your mortgage in 15 or 30 years, a certain amount of money must be paid every month. On the other hand, if you obtain a mortgage loan only, you pay only the interest for the early years. Interest only periods vary. Homeowners can opt for a three, five, seven or ten years interest only loan. After the interest-only period ends, the house must begin making payments toward the principal and interest. Why is it an Interest-Only Loans Beneficial? If you live in a booming housing market, an interest only loan may be the only option for the purchase of a home. Many are attracted to these loans because the first mortgage payments are low. For example, a $ 200,000 conventional loan has a monthly payment of about $ 1200. With an interest only loan, the loan will be about $ 800 per month. So if you buy in a market overpriced, living at affordable prices is at hand. Pitfall of Interest-Only Loan Once the interest only period ends, you still owe the original amount of the loan. When homeowners make payments towards the interest and the balance of capital mortgage can increase by 40%. Most homeowners are not able to afford an increased mortgage. If you plan to live at home for several years, an interest only loan can not be a good option. On the other hand, if you have a considerable income and can afford a higher mortgage, you can benefit from this type of loan. Another option provides for the sale of your home before the interest-only period ends. If the values of home in your area have increased significantly, you can take advantage of the equity. However, if the housing market takes a dive and the decline of values at home, you may be unable to sell your home.