When it comes to interest-only mortgages, a lot of people don't know what to do. It makes sense. There is no such thing as just paying the interest on a mortgage. Even if you have a mortgage that only charges interest, you still have to pay down the loan's principal. You get an interest-only payment plan for a certain amount of time, after which you switch to a more traditional type of mortgage.
You probably already know that most of your mortgage payment goes toward paying off the interest. Usually, about 95% of your payment goes toward paying off the interest. So, if you had a standard $100,000 mortgage with an interest rate of 6%, your payment would be $600 per month. Out of that $600, $100 goes toward paying down the amount you borrowed, and $500 goes toward paying the interest.
Jumbo loans are used for interest-only mortgages, and the difference in the monthly payment gets bigger as the loan amount goes up. So, the difference between the two loans is $100 for a $100,000 loan and $1000 for a $1,000,000 loan. Smart investors can use that $1000 a month to make more money and build assets much faster by using leverage.
Investors and wealthy people who can make a profit on the principal part of their mortgage payment have traditionally used interest-only mortgages. But almost anyone can get an interest-only mortgage these days.
The payment period for an interest-only mortgage is based on the time it takes to pay off an adjustable-rate mortgage. But it can also sometimes be offered at a fixed rate. But even with a fixed-rate mortgage, the payment period usually doesn't last the whole loan term. Interest-only mortgages are only for a short time. With InterstFirst loans, interest-only mortgage payments can only be made for half of the loan term. When the time comes to stop paying only the interest on your mortgage, your loan payment will go up to include both the interest and the principal.
Some types of borrowers can benefit from getting a mortgage that only pays the interest. For one thing, the first payments are smaller, which frees up more money that can be used elsewhere. It can be put in the stock market or used for cash flow. The extra money can be used for anything, like to make more money, pay for college, or save. The catch is that after a certain amount of time, you will no longer be able to pay just the interest on your loan. After that, your monthly loan payment will go up.
Only you know your situation well enough to know if an interest rate mortgage is right for you. Talk to a banker or mortgage broker for advice and specific financial information, like how much your monthly payments are expected to be. Then, look at your other mortgage options before making a decision.
