The interest-only mortgage is becoming more common and well-known as people look for new and creative ways to pay for buying a home. In the first few years of an interest-only mortgage, you can choose to pay only the interest or just the interest and a small amount of the principal each month. Depending on the lender, interest-only periods can be part of mortgages with adjustable rates or mortgages with a fixed rate for 30 years.
In a traditional mortgage, your monthly payment is split into two parts. One part pays the interest on the loan, and the other part pays off the loan itself. The most important thing about an interest-only mortgage loan is that you can choose to only pay the interest for the first set amount of time, which is usually three, five, seven, or ten years. The choice is open to change. You can choose to pay only the interest on your mortgage one month, interest plus a part of the principal the next, or the full, standard monthly payment. An interest-only mortgage payment will, of course, be much less than a regular mortgage payment.
With an interest-only mortgage, you can change the amount you pay each month, which gives you more control over how your money flows each month. During the time when you only pay the interest on your mortgage, you can pay as much or as little as you want each month.
Not everyone should get an interest-only loan. During the first few years of your mortgage loan, you can choose to pay only the interest each month. However, the amount you owe on the principal keeps growing. At the end of the time when you only pay the interest, your mortgage payment will go up a lot. Financial experts recommend interest-only mortgages for certain types of borrowers: those whose income is boosted by large commissions or bonuses throughout the year, those who can reasonably expect to be making a lot more money in a few years than they are now, and those who WILL invest the difference between their interest-only payment and their full mortgage payment in profitable investments.
Most experts agree that the benefit of an interest-only loan is that you can "afford to buy more house." Because you can choose to pay only the interest during the first few years, you can afford the monthly payments on a house that is up to 30 percent more expensive than you could with a typical mortgage payment.
You can also pay the interest and as much of the principal as you want each month in addition to the interest. For example, if you're a salesman whose regular income is supplemented by large commissions or bonuses three times a year and six times a year, you could pay just the interest during slow months and save up to $350. But when you get a big commission, you could choose to pay down the principal by several thousand dollars.
You should also get an interest-only mortgage if you have a good plan for investing the money. If a typical monthly mortgage payment is $900, and your interest-only payment for the month is $625, many financial experts say that the best way to handle your money is to put the remaining $275 into a good stocks programme that will make you money.
Interest-only loans aren't right for everyone, but they can be a useful financial tool that helps you keep track of your spending and boosts your ability to invest. Don't rush into an interest-only mortgage, but talk to a financial expert or loan officer to find out if it might be right for you.
