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29 October 2010

Interest Only Home Loans – Simplified Facts

Home loans are becoming welcoming and more accessible to the common man. It is now possible for even young couples to go in for loans according to their financial terms and conditions. No longer do people have to have large sums of money for paying out the loan amount. ‘Interest only home loans’ means that the borrower ends up paying only the interest for some years and then the principle amount is added later for years. This has risen as a better option for many who are not in position to pay large amounts as EMI’s in present years.
In this type of offer the lender gives money to the borrower and the purchase deed is completed. The borrower becomes the owner of the house. Every month he has to pay a small amount that is interest to the principle amount (loan amount). During later years he has to pay the interest along with large sums of the principle amount. This option may be good for individuals who are highly qualified and have a new job and they know that over the years their salary is going to increase with their experience. So they can pay smaller amounts in present years and later on be prepared to pay larger sums to complete the loan repayment. However it is also very risky as no one can predict about later years. The large amounts later on can be very difficult to pay back and one may end up in financial tight spot. Some people also take this type of home loan if they are confident about the price rise of their property. They can pay the interest amount and later as the value of their house increases they can sell this and make profit as well as pay the larger loan amount.
Though a boon to many there are certain risks every individual has to take before going in for an interest only home loan. Their job stability may not be guaranteed over the years and only those individuals who are very confident about their financial growth must go in for such type of loan. Also the property value may drop or remain same so the individual may end up paying more than they actually paid for the purchase of the flat some years back. This may result in financial losses and also it may become difficult to sell the house during payments of large amounts of loan.

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