Obtaining an interest only refinance loan has become more difficult in recent years as lender's credit restrictions have tightened. Interest only refinance loans are ideal for individuals who are looking to reduce their monthly expenses, and have already built some equity into their homes. Interest only refinance loans are generally reserved for individuals who have at least twenty percent equity in their homes. This article will give you insight and tips on how to obtain interest only refinance loans.
As a general rule, when looking to obtain an interest only refinance loan, you should expect to pay higher costs. Lenders view interest only refinance loans as risky loans because you won’t be building any equity in your home because the loan balance remains the same. Interest only refinance loan will normally require a higher interest rate than an amortizing loan, a larger down payment, and usually higher closing costs. All of these costs must be considered when you are looking to obtain an interest only refinance loan.
The first tip on how to obtain interest only refinance loans is to talk to your current bank. If you have been current on your mortgage payments for an extended period of time, your bank may be willing to offer you an interest only refinance loan. Some lenders may question why you want to switch to a interest only loan, but as long as you have a sizable amount of equity in your home (20% or more), then obtaining an interest only refinance loan from your bank will be possible. Even though it’s a refinance, you will still need to pay closing costs, order a new appraisal and often times pay extra points since you are switching to riskier loan.
If your bank is unwilling to give you a good deal, the next tip on how to obtain interest only refinance loans is to shop around. You can go bank to bank looking for interest only refinance loans, but that process can be grueling and time consuming. Your best bet is to go online and apply for an interest only refinance loan through an online mortgage broker. An online mortgage broker will set you up with several different lenders, and will show you what each lender is quoting. You can see what interest rate they are providing, what closing costs you will have to pay, and whether you will need to pay points on top of the closing costs.