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Why would any one get an interest only loan? Mortgage payments are broken up into two sections, one being principle and two being interest. When making payments on an interest only loan, your whole payment is going only toward the interest, duh. So why would anyone want to do this? Well there are several reasons for this. Any loan you acquire, rather it be a 30 year fix or a 5/1 arm, your monthly mortgage payment are mostly going towards interest the first few years anyway. This loan will benefit people who are getting there first house with limited or no money down and don't want that high payment. But it gets tricky when the property value doesn't increase. Because of course you want to eventually get out of this loan because your loan balance will never decrease. And if values do not go up, it makes it very difficult to get into an interest and principle loan, because you're left with little or no equity. However, properties do eventually go up no matter what, unless you live next door to a nuclear plant. Then after one two or sometimes it takes three years you can refinance into a 30 year fix with a lower interest rate and start paying down the principle. So long story short, look at interest only loans as good starter loans.
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