Interest Only Equity Loan
An interest only equity loan allows a homeowner to borrow against the equity in his or her home and only pay the interest on that loan for a set period of time. These types of loans allow borrowers to access a large amount of money at a low, tax-deductible interest rate. Because you are not initially paying the loan principal, interest-only loans also have low monthly payments to free up cash for other expenses or investments.
Interest Only Equity Loan Drawbacks
An interest only equity loan is a good option for homeowners who are diligent with their budget and have a plan in place to pay off the equity loan by the end of the loan term.
However, some interest-only equity loans are interest-only for a certain period of time. After this period, the homeowner can no longer access the funds and will then have to begin paying interest and principal on the loan, similar to a first mortgage. Other interest-only equity loans require that the entire balance of the loan is due at the end of the term - with no other repayment option.
Either of these cases can be dangerous ground for those who are not disciplined with their finances.