Not everyone has sterling credit. Many who don't wonder if there are interest only home loans for bad credit. First it is necessary to know what an interest only loan is. Mortgages come in several varieties. Traditionally, most all loans were with fixed rates requiring even amortization of payments. This means that both interest and principal are paid during the entire course of the loan.
When you are making payments toward the principal, then you are creating equity. Equity in your home can be important for several reasons. If rates go down in future years having equity can allow you to refinance thus lowering your payment. Also, if you are forced to sell your home then having equity prevents you from being in a situation that the sale price does not clear the mortgage. These “short sales" are a common sight in today's market.
Other loans only require payment of interest of a given period of time. This is not forever. Eventually the loan principal must be repaid. Additionally, most all interest only loans do not come with a fixed interest rate. This means that the initial interest rate will adjust. These adjustable rate mortgages (ARM's) can entail nasty surprises for borrowers.
When the interest rate goes up it can make the amount of your monthly mortgage payment rise significantly. Many borrowers do not fully understand this and are caught off guard upon the first rate adjustment. It is imperative that all who entertain interest only mortgages know exactly when the adjustment will occur. It is impossible to exactly predict the amount of the increase, however it is possible to estimate it.
When you are looking at these loans you must estimate your future payments and ensure you can afford them. Not being able to afford your mortgage payment ends with an obviously bad result. The most devious of these loans are referred to as “teaser rate" loans. A teaser rate interest only loan has a very low initial introductory interest rate.
This rate can be as low as one percent and creates a very low initial monthly mortgage payment. This serves to “tease" the borrower into selecting it being attracted to that initial payment amount. However, things quickly change with teaser rates typically skyrocketing upon the first adjustment. This results in unknowing borrowers being unable to afford the new mortgage amount. As indicated, this ends badly for the borrower.
If you have bad credit, then many of these loans most probably are unavailable to you. The best mortgages for those with bad credit are FHA backed loans. FHA loans do not have interest only varieties. It might be possible to find one elsewhere, but make sure you read the fine print.
Interest only home loans for bad credit might exist. However, be careful. Many interest only loans can have bad surprises. Make sure you understand all the details before you sign on the dotted line.
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