Experts Agree That For Many Interest Only Loans Remain A Poor Choice

The results from our most recent poll of financial experts is in and they are in agreement, if you are searching for a new mortgage loan or looking to refinance, then it is recommend for almost every borrower to get a traditional principal and interest loan product. Finding interest only loans in 2015 is again possible, despite the fallback from their impact on the housing crisis just a few years ago. Many consumers are turning to interest-only loans, where you pay only the interest on your loan for the first few years instead of paying both interest and principal.

Interest-only loans are touted as perfect for those consumers who don’t plan to remain in the same house for more than five years, or who know their salaries will notably increase in the next few years. The reasoning behind this is that you start with lower monthly payments, so you either can save money to buy a bigger house, or save the heftier payments for when your salary increases.

However, be wary of interest-only loans. After the initial five-year period, your interest rate may increase. So you could end up paying more than you would if you had chosen an interest and principal paying mortgage at current low rates.

Furthermore, while you will have lower monthly payments at first, you are not paying any of the principal of your loan. So the only equity you’re building in those first years is based on rising property value, or any extra payments you may make.

Instead, consider getting a traditional loan through your local bank or credit union. Dealing with a professional and unbiased loan officers can help you find the right loan for your situation and when in doubt ask a financial advisor or credit counselor for additional advice.


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  • FAQ for borrowers searching for personal loans in Texas

    How do I decide if a personal loan is right for me?

    A personal loan is a significant commitment. Weigh the benefits to decide whether paying interest for the privilege of borrowing money in advance is crucial. Understanding your responsibilities in addition to the reasons for taking out the loan is critical to obligating your future income to make the payments.

    How does a personal loan affect my credit score?

    Hard inquiries performed by creditors are going to knock a few points off your credit score. You can increase your credit score by making timely payments and never missing a single one. Paying late can affect your credit score and block access to future loans. 

    Do personal loans need collateral?

    Personal loans are generally approved based on creditworthiness. Typically designated as “good faith” loans, the lender won’t need collateral to guarantee that you’ll repay what you’ve borrowed. Although riskier for loan issuers, unsecured loans can cripple your ability to access further credit if you fail to repay to completion. 

    Can I change my payment due date?

    Your payment due date will be set when your short-term loan is approved and will be the same date during the month. You won’t be able to change this pre-determined date. 

    What are the different types of short-term financing?

    Short-term loans, trade credit, overdrafts and credit cards are common examples of short-term financing. Typically, the repayment period is as short as a few weeks up to five years in length. Depending on the type of financing (personal loan, unsecured loan, installment loan) and lenders terms, you will generally find many loans are between six to thirty-six months for repayment.