If you are a homeowner and looking for a loan product that not only allows you to pay off your home, you might be pleasantly surprised at the many products available under the umbrella of refinancing loans. Refinancing loans in their traditional forms are second loans that allow you to pay off an older loan, using the same property as collateral. Besides this traditional type of loan, there are many others that not only give the homeowner the ability to pay off property, but give alternative ways to pay off these loans that can be extremely beneficial to homeowners – especially financially savvy homeowners.
Two types of loan products that offer alternative payment options are Interest Only Refinancing Loans and Optional ARM Refinancing Loans.
A standard refinancing loan only has one option; pay both the principle of the loan and the interest payment at the same time for a set period of time. Interest only loans allow a homeowner to pay less than the full payment (principle + interest), the homeowner can opt for paying the interest alone. This type of loan can free up cash flow worth hundreds of dollars or in some cases thousands of dollars per month. Extra cash flow for many financially savvy homeowners can help them invest this extra money in things such as their 401K, college tuition for a child or other expenses. In addition, a homeowner that has a seasonal job or career where income can fluctuate, can use the options to lower pressure during the lean times.
The other type of loan that can be also very useful to financially savvy homeowners is the optional ARM refinancing loan. This loan not only allows you to make interest only payments, but also offers a minimum payment option. Minimum payment means that not only can you skip paying the principle of the loan, but you can opt out of paying some of the interest of the loan as well. Sometimes this option is called interest deferred.
It should be noted that besides giving savvy homeowners the option to pay less per month, the optional ARM refinancing loan also allows a homeowner to pay off their loan quicker. It gives the homeowner the ability to pay off the loan in a standard 30 year term or even a 15 year term. The less time it takes to pay a loan off, the less money you need to repay.
By: Connie Barker
Posts Tagged ‘Cash Flow’
Interest Only Vs Traditional Refinancing Loans
November 6th, 2009
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 rates for 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.
By: Connie Barker
Option ARM Refinancing Loans
November 3rd, 2009
There are many products available that are included under the umbrella of refinancing loans; one of them is the Option ARM refinancing loan. ARM stands for adjustable rate mortgage and while it is a popular option, before you apply for one, there are a few things you should know.
An option ARM refinance loan is possibly the most flexible type of loan on the market. With the option ARM refinance loan, you have four different options to control your loan payments each month.
For instance there are two options that allow you to pay less than the principle and interest that are normal for all standard loans. Instead of paying both the interest and principle, you can choose to pay either the minimum payment or interest only. Minimum payment is the absolute minimum you can pay on your monthly loan payment. This type of payment is usually term interest deferred, because not only are you not paying the principle, you are also not paying some of the interest. The interest and principle are tacked on later on in the life of the loan according to the specific loan schedule. It should be noted that the minimum payment is usually increased every year to keep the homeowner somewhat in line with their necessary payments.
An Interest only option allows the homeowner the option to pay only the interest on the loan deferring the principle. Interest only payments are a great way to increase cash flow, when employment is tight or if you would rather use your monthly income for other types of purchases or investments.
Besides two options for paying less than the principle and interest of the loan, you also have two options for paying both your principle and interest. The first type of payment option is called the 30 year amortization payment. You pay your loan according to a standard loan in which you pay the principle and interest for a full 30 year mortgage term. The other type of option available is the full 15 year amortization payment. If you have extra income and would like to pay down your debt quickly, you can choose the option of paying off your loan in a 15 year schedule.
It should be noted that this type of mortgage is not for everyone. For instance, seasonal employees might benefit from this type of mortgage especially during the slow season and savvy homeowners that manage their money well can also benefit. However, this type of loan is not for the person looking to pay the least amount possible due to a lower income. In situations like these, this loan can increase the risk of financial problems.
By: Connie Barker