Question:

How to choose an interest only mortgage refinance plan and are those IO loans best to use for debt management?

Answer:

What are interest only mortgage refinance programs suitable for?

  1. Refinancing to an Interest Only home loan can make your finances more manageable when you use a debt consolidation interest-only mortgage loan refinance. IO mortgage refinancing is often used as a way to manage combined secured and unsecured debt.

    If you have a lot of credit card debt to settle, and a traditional mortgage with low LTV combining those in an IO home loan can be quite helpful.

    Not every borrower, though, can benefit from an interest-only mortgage refinance to consolidate debt obligations. Those loans are structured to allow you to pay only interest in the months when you are short on cash.

    If you do not have the discipline to pay principal while the IO option is available, you are likely to pay off no debt during the interest-only period and you will be relying on home equity to grow through appreciation rather than paying off the loan. In the USA, it is very likely that your home's value will grow 2% to 5% a year. However, that is not necessarily always true.

  2. You might simply want to get an IO option on your existing mortgage. Go to your lender and ask them if you can get a streamline refinance to a home loan with IO option.

How to select a good Interest Only home loan refinance for debt management purposes?

Find a professional highly reputable debt management company. This is your best shot.

It is very likely that your IO loan will have higher rates than the corresponding loan for the same amount and terms, but without the IO option and without debt consolidation. Actually, it is said that the debt consolidation loan needs to have lower rates and lead to reduction of the monthly payment. However, this is not always possible.

Unless you are dealing with very professional and ethical debt management company, truly responsible to managing their clients' financial needs in their best interest it is very likely that your IO mortgage loan won't carry the rates you need and your monthly payment won't be reduced as much as you expect it.

Most often, to truly benefit from a debt consolidation IO refinance, you will actually need a hybrid Option ARM, not a pure I-O refinance.

Rates will be low enough long enough, and you can actually make minimum only payments sometimes. The burden of the loan is transferred to its later years when it is expected that you have accumulated enough income to repay combined debt, or have made significant prepayments to the loan while the minimum and interest only options are still available.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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