The IO loan has become very popular in recent times. Despite it’s popularity, not everyone is right for an IO loan. In this article, we’ll look at a few factors you can consider when thinking about an IO-loan.
An Interest-only loan is a good choice when you expect your income to rise in the near future. If you’ve got a study to finish, or a promotion to come, you can choose the IO-loan. It gives you low monthly payments now and when the mortgage payments get higher you can afford it because you’ve gone up in income.
If you have ups and downs in your income, an IO-loan can give you the flexibility you need. When times are good, you can pay the interest and pay off some of the principle. When times are not so good, you can choose to pay just the interest and get by that month. One of the ups of an Interest-only loan is the fact that you can pay off principle without a penalty. Don’t make the mistake of spending the extra money on other things than principle, or you’ll get a nasty surprise at the end of your IO-loan.
If you are a first-time home buyer, an IO-loan allows you to get more home with your income. The smart way if using this advantage is buying a starter home, waiting until it has risen in value enough to make a profit and then selling it. The mortgage gets paid off and the profit can be used to buy the next, bigger house. The next mortgage can be a ‘regular’ mortgage.
What you need first and foremost for an IO-loan is financial discipline. You need to be disciplined enough to pay off some of the principle on your home whenever you can. If you don’t, you will be hit hard by a big increase in payments when your Interest-only loan ends.
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