Interest Only Mortgages

Interest Only Mortgages Pros and Cons

Interest Only Mortgages can provide you with many benefits that may include the following:

1. Lower your monthly payments. For Interest Only Loans, the monthly mortgage payments are lower because you are not making payments toward principal. You may lower your payments by as much as 30% with this type of mortgage loan.

2. Get more home for your money. With Interest Only Mortgage Loans, you may qualify to purchase a larger home that you want and not just what you can afford. This may be an ideal way to buy in a nicer neighborhood and send your kids to better schools. Interest Only Loans can be substantially more cost affordable than the traditional mortgages. You are qualified based on the amount of interest only payments and may chose to refinance before the interest only term expires.

3. Increase your available cash flow. With an Interest Only Loan, only the interest is paid and borrowers have increased cash flow. Many borrowers put the money saved into investments including college funds, retirement funds, stock market, paying off high-interest credit cards, paying principal faster, start home improvement projects, and other financial needs. With an Interest Only Mortgage the benefits of extra cash are up to your use and control. At the same time, homebuyers can still taking advantage of tax deductions on the mortgage payments. An interest only loan is especially beneficial for homeowners that move regularly.

4. Interest Only Mortgages may help you build more equity. If you purchase a larger home or one in a better neighborhood, appreciation on your house value could be much greater than on a home of lower value or in a less desirable area. Many borrowers apply for Interest Only Loans anticipating to sell or refinance their home before the payments adjust.

5. Flexibility - Interest Only Mortgages allow payment flexibility. If you have a job with flexible income or seasonal income like a commissioned salesperson you may prefer an Interest Only Mortgage. When your income is lower, make the low payment and when it spikes as you get bonuses, pay down the principal with the extra money. Borrowers can make principal payments at any time.

6. Economic conditions may cause you to change careers or jobs without notice. An Interest Only Mortgage could make the transition easier by preserving your savings longer due to lower required payments. Interest Only Loans are also ideal for people who do not intend to stay in the same house for very long.

Cons of Interest Only Mortgage Loans

1. If a house loses it's value. A concern for some borrowers may be that when the time comes to sell, the housing market is down or the house has lose it's value. During the interest-only period, borrowers do not build equity in the property. Instead borrowers build equity on the appreciation of the home value when it is sold. However, if a house is sold at less than the original purchase price, the borrower must pay the difference at the time of sale. Borrowers may always decide to build equity at anytime by making principal payments.

2. Payments increase after the initial Interest Only period. The underlying loan is a fixed-rate mortgage loan or an adjustable-rate mortgage loan. After the initial interest only period, the monthly payment will increase according to the loan type to include principal payments. It is a good ideal to determine the potential maximum increase during the life of the loan. Many borrowers typically refinance before the mortgage payment adjustments.