Should I get an intrest only home loan until my credit improves?

Answer 1

There are plenty of places around the country where the Real Estate Market is actually shrinking -- meaning that the value that you pay today for the residence in another 3-4 months can be thousands of dollars less.

Given this, and the fact that a Interest-Only Home Loan is just that -- Interest Only (which means that you are basically renting the residence -- but realize this -- YOU WILL have to pay for Insurance and Taxes in Escrow Account too -- which will ADD to the final payment each month!) -- and that can be dangerous to you financially for ...

What if the trend of the Housing Market to 'correct' itself for these overvaluations continues? What happens if you need to sell the residence, and given that you have ZERO Equity in the property -- how are you going to absorb a loss that may be in the thousands of dollars?

Answer 2

I agree with Draba 123. However, you can get an interest only loan that is fixed for about 5 years and then is variable afterwords. Basically, for the first 5 years your interest rate is fixed, but then you only make interest payments. At the end of those 5 years, you begin paying back the loan, but then your rate becomes variable, fluctuating with the market trends. An interest only loan is a good option for those who may be planning to refinance in a short while. But before you consider that option, make sure your income can support the switch from Interest Only payments to principal and interest payments. It might be only a couple hundred extra a month, but if you're already making the payments close, it could become a problem.

Many banks offer interest only payment options to individuals who may not have such excellent credit - they are called sub-prime banks. And very often, their rates can be surprisingly good. But if you feel more comfortable tuning up your credit before taking on a mortgage, I suggest you do so right away, but don't let an excuse prevent you from owning a home.

Answer 3

IO loans can be good options for some people. If you can only afford to pay the interest, which is the minimum payment, you're going to be stuck with a huge principal at the end of the loan term. But if you can afford to pay extra some months on the loan, your minimum payment will actually be reduced month after month as your principal is lowered because the interest payment is calculated on the outstanding principal balance. When your credit is repaired and you can afford more, you can refinance and you're already well on your way. :) Most IO loans also have caps to keep the interest rate from getting too unbearable but the caps can usually be fairly high. There are other options as well including getting a first and second mortgage where one will be fixed at a average rate and one will be IO. This is good for people who can't afford down payments.

Answer 4

No, No, No! I have a friend that got that and with the rising interest rates, they ended up financially devastated, declaring bankruptcy, making it even harder for them to get a good rate.

There are ways to improve your credit score. I've seen interest rates that were well into the double digits. Our interest rates right now are still low. You're better off just saving, improving your credit score and then when the house prices bottom out, buy a house with a traditional mortgage.

Answer 5

One of the worst decision is a interest only loan as its basically the same as renting.

Answer 6

DON"T Do It!
you will get bent over.
you haven't learned to handle money (see credit score) and you want a pink dead elephant tied around your neck?
visit daveramsey.com to learn the hard lessons the easy way . Bankers hate the commonsense proven info you can learn.
you might need to reasses your present income skills and career.