Interest-Only Mortgages: The Flexible Solution for Refinancing

By Debbie Wilson
Loan Page Columnist

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Refinancing with an interest-only mortgage can be very appealing in today's low-interest rate market, especially if you plan to move soon or need some extra cash for home repairs, health, or school expenses. Find out if refinancing with an interest-only mortgage is right for you.

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Interest-Only Mortgage Options

When you refinance with a typical interest-only mortgage, you have the advantage of paying just the interest portion of your mortgage for a period of three, five, seven, or ten years. If you plan on only being in your home for such a time, an interest-only mortgage might be a good way to refinance, since it frees up cash you would be paying on principal, so you can use it for college tuition, home improvement, or other necessities.

Additionally, with most interest-only mortgages, you have the option of paying as little or as much principal as you desire any given month. This option might appeal to you if you like the idea of flexible monthly payments that can be adjusted to your individual situation on a month-to-month basis.

How Does an Interest-Only Mortgage Affect Equity?

You've probably been told by others that by not paying down you loan's principal, you're also not building any equity in your home either. But in a fast-appreciating real estate market like the one we've experienced in recent years, this is not necessarily the case. In situations like these, you'll likely experience increased equity through home value appreciation alone, which could average anywhere from 4-6 percent per year. Of course, it the market declines, this will no longer be the case.

So don't be afraid of the many interest-only loans available. With flexible payment options, increased cash flow, and more control over your refinanced mortgage, it could be the loan you've been searching for.

About the Author
Debbie Wilson owns and operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management with a minor in Physical Education.

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