The interest only home equity loan and HELOC provide a unique opportunity with reduced monthly payments. Are you looking for cash out with the lowest possible payment? Are you looking for flexible terms, where you only pay when you access the money? We offer home equity lines that have interest only payments due each month. This keeps your payments low, and with credit lines, you only pay interest on the portion of the home equity credit you actually access.
At Home Equity Mart, our primary objective is to assist our clients in finding the most suitable home equity loan. Whether you are in search of an interest-only home equity line, or a fixed rate HELOC, we will link you with a lender capable of aiding you in establishing a home equity account.
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- Interest Only Payments
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What Does Interest-Only HELOC Payments Mean?
An interest-only mortgage is a mortgage type wherein the borrower, known as the mortgagor, is obligated to make payments solely towards the loan’s interest for a designated period. The repayment of the principal is typically done either in a lump sum on a specified date or through subsequent payments.
How Long Can You Make Interest Only Loan Payments?
In essence, an interest-only home equity line of credit (HELOC) entails borrowers making payments exclusively for the interest and any associated fees for a predetermined period, typically ranging from 5 to 10 years.
How an Interest-Only Loan Works
Typically structured as an adjustable-rate mortgage, most interest-only loans allow for making interest-only payments for a duration of up to 10 years. Following this initial period, the repayment will encompass both principal and interest. The interest rate on an ARM loan has the potential to fluctuate over the loan term, resulting in corresponding changes in your payment when the rate adjusts.
Upon the conclusion of this interest-only period, your monthly payment will significantly increase as it now includes both principal and interest payments. Additionally, if the interest-only loan is an ARM, the payment amount may also vary due to periodic changes in the mortgage rate.
Why Consider an Interest-Only Mortgage?
Opting for an interest-only loan or HELOC can be advantageous if you aim to keep your monthly housing costs at a minimum. This home equity option is often favored by individuals with short-term homeownership plans, such as frequent movers or those viewing the property as a short-term investment.
If you are contemplating the purchase of a second home, an interest-only home equity loan may be a suitable choice. Some individuals acquire an investment property with the intention of eventually making it their primary residence. Making payments solely towards the interest can be convenient during the period when the home is not permanently occupied.
Interest-only mortgages may be a financially sound choice for certain borrowers due to the following reasons:
Initial Monthly Payments are Typically Lower: Given that the initial payments only cover interest for the initial years, monthly payments are generally lower compared to some other loan options.
Affordability of a Pricier Home: The lower interest-only payments during the introductory period may enable you to borrow a larger sum of money, making it feasible to afford a more expensive house.
Potential Faster Loan Payoff: Making additional payments towards an interest-only loan can lead to a quicker payoff, as the lower principal results in reduced monthly payments. In contrast, with a conventional loan, extra payments reduce the principal, but the monthly payments remain constant.
Increased Cash Flow: Lower monthly payments may leave you with additional funds in your budget, contributing to increased cash flow.
Potentially Lower Rates: Typically structured as an adjustable-rate loan, interest-only mortgages may feature lower rates than fixed-rate mortgages.
What Are the Risks Associated with an Interest-Only Home Equity Lines of Credit?
Interest-only home equity loans and HELOCs pose certain risks, given that borrowers do not accumulate equity during the initial period and encounter elevated payments when transitioning to principal and interest payments. It is crucial to evaluate the long-term affordability and potential fluctuations in home equity interest rates.
Take the first step by applying for a free, no-obligation interest only loan quote, and allow us to support you in achieving your financial objectives today!