Interest Only Vs Traditional Refinancing Loans

If you are thinking about refinancing your home, two types of refinancing loans you should look into are Interest Only and Traditional Refinancing Loans. Here are some tips.

Traditional Refinancing Loans

The most common type of refinancing loan is the traditional loan. A refinancing loan is a new loan that replaces an older loan, using the same property as collateral. Refinancing your home mortgage will completely revamp it giving it a new monthly payment, payment terms and length of the loan. The most beneficial aspect of traditional refinancing loans is that they usually have low fixed interest rates.

Many homeowners can purchase homes at times when lenders only close on mortgages with high interest rates, by refinancing your loan, you can lower your interest rate and ultimately pay less per month for your mortgage. Traditional refinancing loans are extremely similar to primary mortgage loans and are considered very conservative loans that have limited risk to the lender. Because of the reduced risk, interest ratesfor traditional refinancing loans are usually the lowest.

Interest Only Refinancing Loans

An interest only refinancing loan gives the homeowner the option of paying a lowered monthly mortgage payment. A traditional refinancing loan combines the principle of the loan with the interest part of the loan in each monthly payment; however an interest only refinancing loan gives the homeowner the option of just paying the interest amount and deferring the principle until a later date.

It is important to note that financially savvy homeowners can take advantage of these lowered monthly payments. While it is not a good idea in general to only pay the interest of your loan just to lower your payment, for certain homeowners, paying only the interest increases cash flow for other uses. For instance, you might want to take that money and invest it into a 401K, pay for a child's tuition or use it for Christmas gifts. Interest only refinancing loans give you the added option of doing more with your monthly mortgage payments.

It should be noted that most interest only refinancing loans only give you the option to defer the principle for a set term, for example the first 10 years of the loan.

If you are thinking about refinancing your home, make sure you look into the many different refinancing loan products available from your lender. It is important to carefully consider each product to determine which one best fits your needs.