Interest Only Loans Caution!

Are you looking at the interest only loans? Interest only mortgage loans are becoming a popular.

The initial low payment with the hope of higher future income can place you in a bad situation.

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Financial freedom and personal finance expert Dave Briggs answers a common question about these mortgage loans:

I would like to know your thoughts on interest only mortgage loans. Seems to me that since the majority of equity you build in a home is through appreciation, that this is a reasonable option. Am I missing something with these loans?

An interest only mortgage loan carries with it more risk than most people realize.

Especially in today’s housing market, there is no guarantee that every house will appreciate.

Since no principle is being paid, the risk is high that you may sell your house and after selling commissions and other costs, owe more on the mortgage than you got for your house.

In addition, mortgage lenders may use the interest only loan to convince someone they can afford a bigger house than they really should buy and then pay the price when they realize they are in over their heads.

For these reasons, I think people should stick with conventional mortgages.

The reality is, if all you can afford is an interest only mortgage, you are buying a house you cannot really afford.

Look for a less expensive home with a conventional mortgage and a down payment large enough to avoid the mortgage insurance (usually 20% down) and you will save both money and a lot of financial stress.

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