The advantages and disadvantages of fixed interest

The advantages:

The advantage is that you can lock in a fixed interest rate over the life of the loan with this program. I think that is the main reason behind its popularity.

Fixed-rate interest-only loan is a new product to help the borrowers with flexibility under the present condition of the market.

This loan program carries both the stability of a fixed rate and the flexibility in payment as in interest-only loan.

The Disadvantages:

The drawback is that as you are not paying interest on your mortgage loan, equity is not built up in your home.

It is true that with the steady increase in rates, fixed rate interest only mortgage is gaining popularity. Through this program consumers can get both the security of a fixed rate and the option for making lower monthly payments.

The rising rates have made this program popular particularly to borrowers who are having financial problems at present and may take a second mortgage later. This program allows the borrower to lock in an interest rate for the life of the loan. The borrowers need not pay principal for the first 10 to 15 years thereby getting their monthly payments reduced.

It can be considered as less risky than other interest only mortgages. The interest only period continues over a decade providing a chance with the borrower to see their incomes rise before the payment is reset. The borrowers also get the idea about the amount higher payment that they have to meet after reset.

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Certainly drawbacks are there with no equity built up during the interest only period. In the later years the higher monthly payments can pose problems.

I don't think that equity is not built up in the interest only period. As the value of homes appreciates, equity is still built through appreciation even when you are not paying any principal.

I am not clear with the types of mortgages that I am being offered. Let me explain my situation. I received a commitment letter stating that I am approved for a mortgage (though I filed bankruptcy 3 years ago but my spouse who is co-borrower has excellent credit – about 720), 2/28 fixed/ARM with 5 year interest-only period. The loan was expected to adjust after each half-year which I did not like as I had different financial goals. I was expecting to deal with the loan only for 5 years minimum as I would be paying off the car in 3 years and the bankruptcy would be erased from my credit report in 7 years. I am thinking of building my equity and refinancing in the 5 year itself with a lower rate. But I want to know more about the type of loan offered to me and if it can really help me build equity? what are the pros and cons? Some other company offered me 30 year fixed with 5 year interest-only. Pls explain this type of loan and can I refinance any interest only loan

The loan offer you have received is an adjustable rate mortgage of 30 year term with the rate for the first 2 years being fixed but will start to adjust each year after the first fixed period (of 2 years) is over.