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Interest Only Loans in Texas Are Still Around

Interest-only loans in Texas are still around. Even though they are not as popular as they once were, they do still exist.
 
Over the past few years, they have been the topic of conversation. Many homeowners were placed into these programs without being told exactly what type of program that it is or without completely understanding them when they agreed to them. There are certainly benefits of Interest Only Loans when purchasing a home or refinancing, but there are also risks associated with them. 
 
* Please note that this product is available to anyone that qualifies but personally, I only recommend this program for someone that has a fixed monthly income with a potential of receiving a monthly or quarterly bonus. Or, someone that is paid on commission only.
 
Here are just a few of the benefits of interest-only loans:
 
- Smaller interest-only payments give borrowers with uneven income a greater degree of flexibility. The savings generated from interest-only loans versus traditional mortgages give borrowers greater control over their finances, freeing up more money for use in investments or catching up on other bills.
- Smaller monthly payments during the initial interest-only term allows borrowers to afford more home for the same amount of money, or less. Depending on your income, this could mean an increase to your purchasing power by $5,000-$30,000.
- Interest-only payments made during the initial loan term are entirely tax deductible.
 

The risks of interest-only loans:
 
- If home prices fall, borrowers could end up owing more money on a home than it's actually worth. Unless the borrower makes payments against the principal, the home builds no equity aside from annual appreciation.
- After the initial interest-only period, the principal balance can cause monthly payments to skyrocket, especially if interest rates have increased.
- The minimum monthly payment option (available on some interest-only loans) doesn't cover the total interest accrued for a given month.  The difference is tacked onto the balance, increasing the principal balance, which results in negative amortization. A negative amortization can erode existing equity already built in a home.
Understanding some of the benefits and risks associated with interest-only loans is imperative when searching for a mortgage that fits your needs.  If you're looking into refinancing your mortgage or considering buying a home, you need a professional who will take the time to identify your financial goals, and who has the experience and the resources to help you achieve them.
 
Do not move forward with a Loan Originator that is trying to fit you into a specific loan program without telling you the pros and cons of that program. Ask questions to understand your mortgage options and why one program may be better than nother. There are many programs and options available, but not all of them will help you achieve your financial goals.

 

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Are you looking to purchase a Texas home?  Perhaps you love your Texas home but would be interested in refinancing your Texas mortgage to a lower interest rate?  

I'll help you get pre-approved for your Texas home loan and even suggest some very knowledgeable and professional Real Estate Agents in your area of choice.  If you are available to talk, I am available to listen.  Give me a call or visit my website for more details.

Do you want to know all of your mortgage options? Call me today and let's discuss them further.

Texas Home Loan Consultant

Always available for your Texas Mortgage and Home Loan needs!

John R Cannata    P#214.728.0449

NMLS # 322646

Texas Home Loan Expert

Frisco TX Mortgage

      

 

The views expressed on this site are mine alone and do not reflect the views of my employer.

Comment balloon 13 commentsJohn Cannata • September 20 2011 11:24AM

Comments

Thanks for sharing!

 

 

Greetings from S. Florida!!

 

~JF

Posted by Josh Feygin about 7 years ago

John, I believe it's good for buyers as long as the pre-approval process is strict enough for them.

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (LAER Realty Partners) about 7 years ago

John:  I agree that there is nothing evil or wrong with these loans.  The client just has to know the risks and ramifications of the program thoroughly prior to making their decision to utilize them.  As long as that is accomplished, this loan may be the perfect fit for them.  It's all about the level of education and understanding ... and you definitely assisted them with that in your post.  The public needs to know about all their options ...

Gene

Posted by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi, 708.921.6331 - 40+ yrs experience (NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656) about 7 years ago

Each year that ticks by, I think about my buyers who did 10 year interest only or 5 year interest only...

Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - TexasRealEstateMediationServices.com) about 7 years ago

I think it takes a unique set of circumstances for this to be a good choice.  Perhaps buying a second home a few years before retirement when you will down the road be selling that primary home and doing a re-fi or pay off.  But I can't see doing interest only for your primary.  JMO.  And honestly I had no idea they were still out there.

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) about 7 years ago

Thank you for the comments. Yes, these are still available and are not a bad product for the 'right' client. Too many times in the past, a fixed income client would be placed in these loans because of the low payment but when the interim period was over, they were stuck with a large mortgage payment which they could not afford. It only works with the right client (bonus and/or commission based) and as long as the program is explained in detail to those client (which was another previous issue).

Posted by John Cannata, Texas Home Mortgage - Purchase or Refinance (214-728-0449 http://TexasLoanGuy.com) almost 7 years ago

Hi John, curious, about what percentage of home owners buy with interest only? I can see the benefit based on what you shared but I wonder how many folks utilize these options.

Posted by Teral McDowell (Referral Patners LLC) almost 7 years ago

John  This is a personal suggestion - the font in this post is too small.  It id very difficult to read

Posted by Karen Kruschka, - "My Experience Isn't Expensive - It's PRICELESS" (RE/MAX Executives) almost 7 years ago
Hi John, good to see you listed the benefits of interest only loans. Here in Manhattan NY, some coop buildings/boards prefers standard loans rather than interest only loans to be more certain of perspective buyers debt to income ratio.
Posted by Eileen Hsu, LICENSED REAL ESTATE SALESPERSON (Douglas Elliman Real Estate) almost 7 years ago

John these types of loan are great on certain areas of the DFW ... great post

dallas homes for rent by owner dallas houses for rent by owner lynn911.com

 

Posted by Lynn911.com ~ Dallas Real Estate Agent Top Team (Dallas Houses for Rent Dallas Apartment Rentals Lynn911.com ) almost 7 years ago

Teral - I apologize as I didnt receive notification of your question. I'll shoot you an email after I look up the stats. :-)

Karen - Thank you. Typically I change it when I copy/paste it from my wordpress blog. I had forgotten to do that this time. I'll go back and fix it. Thank you!

Eileen - Its a personal choice to have this type of loan program and certainly does not work for everyone. I usually do not recommend it unless someone is on a fixed monthly income with bonus/commission checks monthly/quarterly. Only then does this program really make sense.

Lynn I completely agree. Only works for certain clients.

Posted by John Cannata, Texas Home Mortgage - Purchase or Refinance (214-728-0449 http://TexasLoanGuy.com) almost 7 years ago

Wells Spoken advice, from a lender in Texas you can trust.  Thanks for sharing. 

Posted by Gary Miljour, Mortgage Originator NMLS Licensed in AZ and NC (loanDepot) almost 7 years ago

I appreciate the feedback Gary.

Posted by John Cannata, Texas Home Mortgage - Purchase or Refinance (214-728-0449 http://TexasLoanGuy.com) almost 7 years ago

Participate