You are here: Home > Finance > Property Investors Often Use Interest Only Loans to Get Ahead

Property Investors Often Use Interest Only Loans to Get Ahead

Usually property investors get number of offers related to interest only loans which is quite attractive. But there are many facts that a property investor should know about them before they get on to a final decision. These interest only loans come with lots of terms and conditions so a real estate investor should be aware of all the things related to it as it is a part of investment strategy.

What is an Interest Only Loan?
Interest only loan is a kind of loan in which a person just have to repay the interest amount and there will be no reduction in the principal amount taken. These loans are given for short duration normally ranging between 3 – 5 years.

Why would you take on an interest only loan?
This strategy is generally used by real estate investor who buys a property with interest only loan and pay the interest amount and when they find a customer who is offering them more for the property then they sell it off to them and pay off the whole principal and the remaining interest amount to the lender. These interest only loans can be taken if there is a permanent cash flow. Such, loans are mainly directed towards earning profits on them.

Interest only loans are also beneficial for normal people who are planning to buy home as they can pay off the interest amount easily for the initial few years and later can pay off the principal amount if they have money. Even it is a good idea that a person can buy a property on an interest only loan and keep the flow of money in savings too and later they can pay off the principal amount at once and save some amount of the interest amount. These interest free loans are very beneficial at the times when there are too many big expenses on your head and you can manage to bear all your expenses and you just have to pay the interest for your mortgage.

Consider the points before taking these loans
As you know that nothing is perfect in life so here are some points which you have to keep in mind before taking an interest only loan. There are many risks involved in interest free loans like if you have purchased a property whose market value is $110,000 on an interest only loan with no down payment. Later because of the bad economic condition if the price of a property goes down and now the new market value of your property is $95,000 then you will suffer the loss of $15000 which is a big amount. You have to pay the interest amount of the no credit check loans and the principal amount later. And paying $110,000 for a thing whose value is $95,000 is a stupidity. And if in case you don’t pay your lender the whole amount then your property will be sold off by your lender as these property is pledged with lender as collateral against the loan amount. So it is important to think 100 times before taking an interest free loan as if in case this happens then you should have an additional back up which you can use to pay off the loan amount.

But this interest free loans are not so risky if you are having a sufficient equity behind you or  enough savings in bank but if in case you don’t have enough backup then don’t take an interest only loan as it might land you in big trouble.

Even before going through interest only loan you can also look for other source of finance which is available for you to buy your property as you might get something much better which is easy for you to afford and can be handled easily.

Whatever the final decision is, for you it is important to keep one thing in mind that you should search lenders who is offering you least interest loan as there are numbers of lender with different terms and condition so it is important to look for the best deal which is offered by the lender for your real estate.


  • Digg
  • Twitter
  • RSS

Comments are closed.