Interest-Only Mortgage Period is Over: Time to Refinance or Sell for a Profit?

Those that take the interest-only mortgage route typically do so for a reason: they wish to keep monthly payments low for a few years.

Let’s take the example, therefore, of a couple that have been paying just interest on their home loan for five years. Once this term is over, is it better to sell the home, make a profit and pay off debts on credit cards; or consider mortgage refinancing and remain in the residence?

Certified financial advisor, Don Taylor, has an answer.

The mortgage refinancing debate: Refinancing now will start the clock over on a 30-year loan. Over the last five years, one’s house may have increased enough in value to let you do a cash-out refinancing to pay off credit card bills and other nuisances.

Moreover, the longer loan maturity at today’s solid mortgage rates could leave you with a lower monthly payment than you have on your existing mortgage.

Selling the house, using the profits to pay off your debts and moving into another home is always an option, but it often involves a steep price. Between real estate commissions, moving expenses, closing costs and redecorating the new place, you could spend a sum that dwarfs your outstanding credit card debt.

With an interest-only loan, you’ve kept mortgage payments about as low as they can get without negative amortization on the mortgage. If you were in a 5/1 interest-only adjustable-rate mortgage and you’re facing the first interest rate adjustment after five years, it’s easy understand why you’re looking for alternatives to your current loan.

Just take your time to consider all options and don’t be scared off by adding years onto your mortgage if refinancing is the route you select.