Reply #11: Interest-only loans drawing greater interest [View All]

[54anickel]

http://www.chicagotribune.com/business/chi-0410100323oct10,1,4069808.story?coll=chi-business-hed

Home buyers who want lower mortgage payments and a pricier house are fueling the interest-only loan craze.

The product, which lets you pay just the interest on a loan, isn't new, but mortgage brokers and banks have been seeing stronger demand as attitudes toward home loans have changed.

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An interest-only loan is not an option for everyone. Here are two reasons to consider it, and two reasons to pass it up.

- On the move. An interest-only loan could be the way to go if you're not planning to stay for long in your home.

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"If you're going to be short-terming, why even bother paying down principal?" DiMarco said.

- Sporadic cash flow. Interest-only mortgages may appeal if your income changes throughout the year because of bonuses and commissions. Just because you are paying interest doesn't mean you can't put money toward the principal. If one month you get a $3,000 bonus, you can kick that toward your principal and lower the amount you've borrowed.

- Equity. There are differing thoughts on building equity with an interest-only loan. If the home never increases in value, you won't build any equity by paying off just the interest. And you're underwater if the house depreciates, DiMarco said.

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