Should You Apply for an Interest Only Florida Home Loan to get out of Debt?
So, you’re stuck in credit card debt. And you’d like to eliminate this problem as quickly as possible. While we’ve discussed using your home equity to take care of this problem, another question often arises:
Can an interest-only Florida home loan help to consolidate debt?
Various ways to deal with credit card debt
Let’s say you possess $20,000 in outstanding credit card bills. Replacing this amount with $20,000 in mortgage debt isn’t exactly taking care of the problem - it’s just restructuring your debts. This is the typical consequence for those thtat consider an interest-only mortgage. It’s simply postponing different kinds of payments.
The monthly mortgage payment on a conventional fixed-rate mortgage is self-amortizing, meaning the monthly payment contains BOTH the monthly interest expense and a contribution to the principal that allows the mortgage to be paid off over the life of the loan.
However, an interest-only mortgage does NOT have the principal repayment component, at least not in the early years of the loan, so it allows you to minimize your monthly mortgage payment. This sort of package can help a homeowner qualify for a bigger house or free up funds for other purposes … but it could spell trouble down the line.
Details of an interest-only Florida home loan
Interest-only mortgages are commonly adjustable-rate mortgages, or ARMs, but they can also have a fixed initial term. Restructuring your debt to interest-only debt can free up some financial slack in your monthly spending plan, but that slack comes at a pretty big price.
You’ll take on the interest rate risk of an adjustable-rate loan, the closing costs associated with a new first mortgage and stop paying down your loan balances. Initally, you may free up a few hundred dollars per month - and this cash could be used on your remaining credit card bills. But you’ll still have the balance of your Florida home loan to eventually pay off.
This approach is not recommended unless you were up against it in meeting your monthly bills. Even then, using a second mortgage can be an easier approach than totally restructuring your debts. Keep in mind you’ll pay a few thousand dollars in closing costs to get a new first mortgage and only a few hundred to get a new second mortgage.
In the end, don’t jump all over a Florida home loan simply because monthly payments will be low for the first couple years. If you know you’ll be coming into money down the line, then an interest-only package may be up your financial alley. But there are other ways to avoid debt that may not be as hazardous to the long-term health of your bank account.
