Interest only loans grow in popularity - WALB.com, South Georgia News, Weather, Sports

Interest only loans grow in popularity

June 20, 2005

Valdosta - The signs are posted in yards all over town, and if you're in the market for a new home, you won't have trouble finding one. But buying one in your price range could be a problem. "The prices keep appreciating on the houses," said Jim Powell, Mortgage Broker.

Jim Powell owns Beacon Hill Financial, and helps home buyers find the type of loan that works best for them. For those who want a higher priced home, but can't afford the big payments just yet, he has a solution. "An interest only mortgage is a new tool to South Georgia, its been in the market for quiet a while now," said Powell.

It works just like the name says. For the first three to seven years, a buyer pays interest only and doesn't put any money towards the principle payment. "It enables people to get into a larger priced house for a smaller payment," said Powell.

Powell says interest only loans are great for certain people. "As a short term fix for wanting to get into a bigger house in anticipation of maybe getting a raise later on so you can make the payment, for that its a perfect instrument."

He also recommends it for a lot of military families who know they're only buying the home for a few years. But for people who plan on living there over five years and are on a fixed income, its not a good idea. "I don't like to recommend it because eventually that interest only loan turns into an interest and principle loan so your payment will go up," said Powell.

The rates for interest only loans are a little higher than those on a 30 year fixed loan, and the credit criteria is a little more strict. "That's because instead of the principle being reduced each month, the mortgage company has a little bit higher risk because you're just paying the interest," said Powell.

Before any home buyer commits to an interest only loan, Powell says its important to talk with a broker and make sure it works with your income. It can be the perfect solution for some, or a real estate disaster for others.

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