The various reasons homeowners prefer refinancing include taking advantage of lower interest rates, low monthly payments, getting different types of advances and to building equity. In this type of refinancing, the first 7 to 10 years of any 30 year loan only has payments required on the interest. There is no requirement of paying of the principal amount until you reach the point where it is mandatory to pay it. A good credit history will help you lower your rates of interest.

Interest only refinance loans were introduced in early 1900s, but the concept suffered a set back when the American stock market crashed in 1929. They have returned and appeal to investors, entrepreneurs and self-employed people who are short of credit. They have become very popular in the public and the private sector due to their feature of only paying the interest amount. Many people who want to increase the value of their house have opted for these loans. This type of loan, even if it does not offer very low interest rates, provides reduced monthly payments for the first 5, 7 or 10 years.

Deciding on Interest Only Refinance

Customers who do not intend to stay in a house for long, who have elastic incomes and those who invest in real estate are suited to this kind of loan. People earning from bonuses and incentives, businessmen and self employment who need payments for lean months benefit from these kinds of loans.

Benefits of Interest Only Refinance

This type of loan is useful when you need to lower your payments for a specific time period. The following are the advantages of interest only refinance:

• Tax Benefits - the principal remains fixed which allows you to have a greater amount of tax deductible interest.

• Gives you Ability to Invest - returns a better interest rate than the one on simple advance.

• You have Various Choices - a simple loan cannot provide you the option of paying the principal amount when your business is earning profits, but with interest only refinance you can benefit by paying only the interest when business is slow and paying the principal when income is high.

• Paying Debt - You can save thousands of dollars by utilizing the extra cash every month, which can be used for investing in fruitful purposes.

• Future Expectations - If you think of using interest only refinance for 10 years, it will be highly beneficial as you can avoid payment of principal amount.

Disadvantage of Interest Only Refinance

The only disadvantage is that once the principal payment period starts, the payments may pile up causing difficulties in repayment. You need to carefully evaluate as to whether you will be able to handle the ballooning payments of 7 to 10 years. You might require help of a mortgage professional who will advise you how to make moves with interest only refinance.