Interest Only Mortgage Refinance

An interest only mortgage refinance may be the answer for those who want to remain in their same residence but need to lower their monthly mortgage payments for the foreseeable future. An interest only mortgage refinance allows a homeowner who has been paying both the mortgage costs (interest) and the loan principle to just pay the cost of the loan for at least a ten year period of time. Paying just the mortgage costs frees up money each month for other expenses that may have been choking the budget before. Of course during good months when the cash flow is more plentiful, the homeowner may pay as much on the principle of the lending agreement as desired. This type of lending agreement may be perfect for the person engaged in a sales job where money is really good for a few months and then really awful for the next few.

In most cases however, a mortgage cost only lending agreement may not have the low rate of a fixed rate lending agreement may have. As a matter of fact, a home loan crafted to allow the homeowner only to pay the cost of the home loan will be a variable interest rate lending agreement. But in today's very tight economy, some homeowners are looking for the ability to free up much needed income for other purposes and an interest only mortgage refinance is the answer for them. Some homeowner might use the extra monthly cash to make home improvements, others want to be able to save for a child's college expenses, and others may just want to add to their retirement account. But there is a downside to this kind of lending agreement.

Financial experts are quick to point out that often a homeowner who chooses to move from a fixed rate loan to an interest only mortgage refinance may not be building any equity in their house. And in many parts of the country, this may be true because housing values have actually been falling. Consequently, paying just the cost of a home loan for a piece of property that is declining in value can be a shock later on when the need to sell the house comes into play. If on the other hand a homeowner is fortunate enough to live in an area of continuing growth in the real estate market, paying only the cost of the home loan can actually be a good move, depending on the owner's circumstances. There may be another reason why some homeowners opt for a principle-excluded refinance loan.

Many Americans have bought very expensive houses in recent years and have gone through job loss or medical issues that have affected earning income. Maybe it appeared to be a good decision at the time, choosing a very safe fixed rate thirty year home loan, but times changed. Now a fixed rate home loan may be draining a family dry financially. If there is the belief that another good job will be found in the next few years, or a recovery from a medical setback is made, an interest only mortgage refinance might make some sense. The Bible warns all people to guard against thinking that we are going to live indefinitely. "Whereas ye know not that shall be on the morrow. For what is your life? It is even a vapor that appeareth for a little time and then vanisheth away." (James 4:14)

A typical interest only mortgage refinance lending agreement does have a huge "Gotcha!" on the other end of the cost only portion of the home loan. If the cost only payment period is five or ten years, the entire lending agreement will still be for thirty years. That means that at the end of the five or ten year period, the principle payments are squeezed into twenty five or twenty years instead of thirty. That means much higher payments when they begin. So if the better job doesn't come along, and if the house actually goes down in value, the owner could be left with a very difficult situation.

The interest only mortgage refinance loan may be one of the only ways to keep a house out of foreclosure however. Taking steps to avoiding foreclosure must be made months before it might actually happen. While a person's credit is still reasonably good and this type of lending agreement is available and if a fixed rate mortgage is just weighing the homeowner down, action needs to be taken. The principle-excluded refinance loan may not be for this homeowner, but the option needs to be discussed with a qualified mortgage expert. Do not wait until it is too late and the house is gone. Move early and decisively.

An interest only mortgage refinance loan is really a very risky option. In only a few instances can it ever really be a good idea and in those cases the homeowner must be a very disciplined and focused individual. After all, consider the temptations that await the one who chooses such a lending agreement so that more money can be freed up for "investing." Where would a person be now if they had followed this logic two years ago before the stock market had lost thirty percent of its value? What if investing ideas turned into expensive vacations or a more luxurious car than really needed? Making the decision to truly use the extra money each month for a retirement account for ten years takes fortitude and a sense of direction.

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