The advantage of Long-term I-O loans is that they offer a lower rate and payment versus a 30-year fixed-rate loan without requiring a great risk tolerance. You can obtain these loans with a fixed-rate period equal to or longer than your anticipated occupancy period, which now averages only 5 years. This allows you to free up additional cash-flow without having to worry about the next monthly statement containing a potentially surprising rate and payment increase. The Index and Margin of Long-term I-O loans are far less important as most people expect to be out of the loan before it ever adjusts.

The HELOC-based I-O 1^st Mortgages exactly track the Prime Rate that the Federal Reserve sets and the Fed has raised the Prime Rate significantly over the past year. When the Prime Rate rises, which can occur often and without warning, the HELOC-holder will be facing the associated payment increases immediately, making it the riskiest of loans.

The Short-term I-O loans offer the lowest rate but require a medium-high risk tolerance. They offer the ability to free up the most cash flow and leverage your housing dollar to a maximum. The Margin and Index come into play much sooner and therefore should be weighed much more heavily than any other loan. These Short-term variants offer the highest risk payment option called "Negative Amortization," which is only appropriate for a few, mostly for use on Investment Properties that already have substantial equity.

MORE HELPFUL KEYS AND TIPS

Some important tips for consumers to consider when selecting I-O loans:

DETERMINE YOUR RISK TOLERANCE
Long-term ARMS adjust less often while Short-term ARMS adjust often.

PREDICT OCCUPANCY PERIOD
Predict how long you will hold the loan for. The current National average is now only 5 years so accept that predictions of 10 and 20 years are simply not realistic.

RESEARCH the INDEX
Research the various indices as they can have significant differences despite sounding similar. For example the COFI and COSI index seem similar but one is tied to the Cost of Funds index while the other is tied to the Cost of Savings, two totally different indices. Because the market is expected to be a rising one, select the index that most lags the Fed.

INTRODUCTORY SPECIALS
Do not be swayed by temporary Introductory specials as they generally only last 6 months. We strongly advise you to recognize and avoid accepting a loan with inferior long-term features in exchange for a great but short-lived Intro period.

FACTORS that AFFECT CLOSING COSTS
Realize that certain variables can modify the anticipated closing costs. These variables include Margin and Pre-Payment Penalties(PPPs). While PPPs are a common feature of Short-term I-O loans, many times they can be removed or reduced in exchange for a higher margin or closing costs. Similarly, accepting a slightly higher margin or longer PPP can significantly reduce or completely eliminate closing costs.

INVEST the SAVINGS
While I-O loans allow the payment to be lowered substantially, the purpose is to USE the payment savings to invest in other things. Too often, this loan type winds up being used as just another way to reduce monthly outlays for bills etc. when the real benefit to these loan types comes from investing the payment difference to grow additional wealth.