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Interest Only Refinancing: What You Need to Know

by Gil  Mackey
Mortgage Directory Columnist

If you've heard the adverts about interest only refinancing and become more than a little curious, there are a few things you'll need to know.

Interest Only Refinancing Explained

Most interest only mortgage refinancing gives you the option each month to make only the interest payment on your loan. For example, on a $200,000 30-year interest only mortgage with a 6% rate means you would be required to pay about $1,000 each month, instead of nearly $1,200. This freedom gives you the chance to:
  • Get other debts under control
  • Make improvements to boost your homes value
  • Invest the amount you'd pay on the principal
  • Save money for emergencies
Most interest only mortgages give you this freedom for an introductory period that can last several years, after which you will have to make both interest and principal payments. As this can raise your payment significantly, some homeowners choose to refinance again at this point.

Interest Only Loan Calculator Can Help

Since your situation is likely to be different than the example used above, search the online to find an interest only loan calculator. By using an interest only loan calculator you can get a better idea of what your payments would actually be with this refinancing product. You can see what your interest only payments will be side-by-side with a full payment. A good interest only loan calculator will also show you the amortization schedule for your mortgage, illustrating how your payments are applied to the balance over the term of the loan.

Compare Refinancing Options

Even if you're certain that interest only mortgage refinancing is the solution for you, your best move is to compare your options. Shop around with a few different mortgage lenders and compare the refinancing choices each has to offer. A little time spent in the beginning could save you money in the end.

About the Author
Gil Mackey has been a writer and artist for the past twenty years. In addition to freelance writing, he writes for his local paper, and lives with his two children in Nevada.

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