Interest Only Refinancing for Cash

By Karen Lawson Columnist

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You're starting a business, and need to maximize cash flow. It's time to remodel your home. Whatever the reason, home equity may provide cash for these and other projects. Interest-only refinancing can be an option if you want a lower payment now, as long as you will be able to "pay up" later.

An interest-only loan may provide cash flow during times when it's important to minimize expenses, such as when you're starting a business. For example, on a $300,000 loan at 6.5%, the fully amortized payment is $1,896.20. The interest-only payment of $1,625 is about $271 a month less.

Interest-only loans can help you increase your cash flow to meet your immediate needs. The borrowers who get into trouble with these loans are those who don't have a plan or the resources to make the fully-amortized payment once the interest-only period is over. If you don't pay down any of the principal of your 30 year mortgage during the first 10 years of the loan, you will then have only 20 years left to pay off your mortgage. On that $300,000 loan, the payment would increase over $611 per month to $2,236.72.

So understand your current situation and also your plans for your future. Have your loan agent show you what your payments could increase to once you have to begin paying off your interest-only mortgage. Mortgage lenders offer a wide variety of loan products that can meet different needs. Discussing your plans with a financial advisor can help determine which mortgage options are best suited to your financial circumstances and future plans.

About the Author
Karen Lawson is a freelance writer with extensive experience in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.

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