Interest Only Mortgages is a risky product and does have its disadvantages.
Interest Only mortgages are tricky, because they can be misleading as the
payment is very small for the first 1,2,5,7 or even 10 years. Note that for the
Interest Only Mortgage you will have a balloon payment for the entire principal
balance at the end of the loan term.
Interest only mortgages might be beneficial for people in markets where houses
appreciate rapidly and the plan is to remain in the house for only a couple of
years. Interest only mortgages are available in both fixed rate and adjustable
rate varieties, but most interest only mortgages are of the adjustable rate
variety. Since only an interest payment is due, interest only mortgages
usually have a lower monthly mortgage payment than mortgages that require
principal and interest payments. For example, if you have taken an interest
only mortgage loan for 5 years you only pay the interest on your mortgage for 5
years. The interest only mortgage rate is an adjustable rate determined by the
current interest rate. This preset margin will stay fixed throughout the
remaining term of the loan while the interest only mortgage rate added to it
will change (generally on an annual basis) with the fluctuation of the current
index rate. So after the interest only mortgage payment period is over you
will be paying the adjusted interest only mortgage rate and the principal,
which will increase your interest only mortgage payments.
Interest only mortgages usually have an interest only payment option during the
first 1, 3, 5, 7, or 10 years of the mortgage. Interest only mortgage payment
does not mean negative amortization. Interest only mortgage payment loans are
generally not long term solutions. Interest only loans for a fixed period of
time. Interest-only loans are the latest tool aimed at offsetting high home
prices. Interest-only loans represent a somewhat higher risk for lenders, and
therefore are subject to a slightly higher interest rate. Interest-only loans
are popular ways of borrowing money to buy an asset that is unlikely to
depreciate much and which can be sold at the end of the loan to repay the
capital. Interest-only loans helped homeowners afford more home and earn more
appreciation during this time period. Interest-only loans may turn out to be
bad financial decisions if housing prices drop, causing those borrowers to
carry a mortgage larger than the value of the house, which in turn will make it
impossible to refinance the house into a fixed-rate mortgage.
It is important to keep in mind the nature of interest only mortgages.
“Although interest only mortgages play a vital part in the mortgage industry,
often providing the only means for first time buyers to hold the key to their
own front door, misusing this type of loan is counter-productive. A sample of
the 3 payment options on a loan amount of $250,000 would be:Minimum Amount Due
$804, Interest Only Mortgage $989, 30 year payment $1304, 15 year payment. In
summary, an Interest Only Mortgage Loan can save you thousands of dollars and
possibly earn you thousands more with the right diversified investments over
time. An interest only mortgage loan gives people the tools necessary to
manage their debts as carefully as they manage their assets. 30 year interest
only mortgages typically come with a ten year (often referred to as a 30/10
year interest only loan) or fifteen year fixed (30/15) interest only period.
Best for people who: Are very focused on money management Want to reduce
their monthly mortgage payment Do not intend to be in their homes more than a
few years Interest only mortgages and loans as the name suggests, means you pay
interest only for the first three, five, seven, ten years of the loan, thereby
lowering your monthly mortgage payment by quite a lot.