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Pros and Cons Of An Interest Only Loan
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As with everything else in life, there are pros and cons to every type of mortgage available. Your personal situation will ultimately determine what type of loan is right for you at this time, but if you are considering an interest only loan these are some of the pros and cons that you should be aware of.Savvy investors that prefer to keep their assets as liquid as possible should consider an interest only loan. An interest only loan will free up cash flow every month that can be used for other investments.
With an Interest Only loan the interest rate is lower than with amortized loans. Which means it's your lowest payment option other than negative amortization loans.
Refinancing into an Interest Only loan is the best option if you're not planning to keep the loan for more than 5-6 years.
One con of an interest only loan is that your loan balance never decreases if you only make the interest only payment each and every month. Many consumers get into an interest only loan thinking they will pay extra money, above the interest only payment, each month when they can however they never pay anything extra and their mortgage loan balance remains the same. Most consumers find reasons each and every month to take the money they are saving and apply it towards buying new things and never actually use the savings to pay down their mortgage loan. This strategy can be extremely harmful in the long term and can negatively affect retirement planning strategies.