Title:
Interest Only
Mortgages
Word Count:
615
Summary:
These days, as
people scramble for new and more creative ways to finance buying a home, the
interest only mortgage is becoming more common and well known.
Keywords:
loans, secured,
unsecured, personal, home, apr, mortgage, interest only, cheaper, accept,
applications, deals, offers
Article Body:
These days, as
people scramble for new and more creative ways to finance buying a home, the
interest only mortgage is becoming more common and well known. An interest only
mortgage is one in which you have the option of paying only the interest (or
just the interest and a portion of the principal) each month in the early years
of the mortgage loan. Interest only periods may be applied to adjustable rate
mortgages, or 30 year fixed rate mortgages, depending on the lender.
In a traditional mortgage, each month your mortgage payment is divided in two
parts - one part is paid on the interest charge, the other on the principal of
the loan. The main feature of an interest only mortgage loan is that during a
specified initial period of time - usually three, five, seven or ten years -
you may choose to make a payment of the interest portion of the loan only. The
option is flexible. One month you may choose to make an interest only payment,
another you may choose to make an interest-plus-part-of-the-principal mortgage
payment, or a full, standard monthly mortgage payment. Needless to say, an
interest-only payment will be significantly less than a traditional mortgage
payment.
The flexibility of an interest-only mortgage allows you to adjust your mortgage
cost on a month by month basis, giving you more control over your monthly cash
flow. In any given month during the interest-only period, you have the
flexibility to pay as much or as little on your mortgage as you can.
Interest only mortgages aren't right for everyone. While you have the option of
paying interest only each month during the early years, the principal repayment
on your mortgage loan is accumulating. At the end of your interest only period,
your mortgage payment will take a dramatic jump. Financial experts recommend
interest only mortgages for specific types of borrowers: those whose income is
supplemented by large commissions or bonuses throughout the year, those who can
reasonably expect to be making considerably more income in a few years than
they are now, and those borrowers who actually WILL invest the difference
between their interest-only payment and their full mortgage payment in
profitable investments.
The power of an interest-only loan, according to most experts, is that you can
'afford to buy more house'. Because you'll have the choice during the early
years of paying only the interest each month, you can effectively afford the
monthly payments on a house that's as much as 30% more expensive than you could
with an amortizing (typical) mortgage payment.
You also, however, have the choice each month of paying the interest plus as
much on the principal as you wish. If you're a salesman, for instance, whose
standard income is supplemented quarterly and semi-annually by large
commissions or bonuses, you could pay interest-only during lean months, saving
yourself up to $350 in those months. In the months that you get a large commission
though, you could choose to pay down several thousand dollars on the
principal.
An interest only mortgage also makes sense if you have a solid investment plan.
If a typical mortgage payment would be $900 monthly, and your interest-only
payment for the month is $625, then the best financial strategy according to
many financial experts is to invest the remaining $275 in a solid, money-making
stocks program.
Interest only loans are not for everyone, but they can be a valuable financial
tool that can help you control your spending and give your investment power
some added oomph. Don't rush blindly into an interest only mortgage, but do
speak to a financial expert or loan officer about whether an interest only loan
may be right for you.