ONLY MORTGAGES: BE PREPARED FOR INCREASING AMOUNT OF AMORTIZATION

2007-03-08 10:33:40

( Financial )



Only mortgages are characterized by interest only monthly mortgage payments that do not include repayments of principal. These types of mortgages are prevalent during the mid twenties. However, the depression experienced during the thirties made lenders stopped the provision of only mortgages to their clients.

Nowadays, only mortgages are being offered by lenders to their clients but interest only payments are limited for a certain period usually for an average of five years. Principal repayments start after the fixed period of repayments of interest is finished. Thus, principal loan balance will remain unchanged for five years. The borrowers will incur higher amount of loan repayments once principal payment starts.

Only mortgages are specifically tailored for borrowers who prefer lower initial payments on their mortgages and are confident to cover larger subsequent payments in the future. Likewise, home ownership is made affordable by interest only mortgages. It helps individuals with limited funds to be given the opportunity to apply for home mortgage.

Risks become evident with only mortgages when borrowers cannot afford to cover the amortized amount of principal payment. It will result to higher costs in terms of penalty payments and worst repossession of their homes. It will lead to negative credit reports on the part of the borrowers that will be detrimental to their future prospects of financial sourcing.

Lenders, on the other hand, face the risk of late recovery of their principal investment on the mortgage they provide to their clients. Turn over of funds is slow as well as return of lenders investments. Thus, some lenders charged much higher interest rates for only mortgages to compensate this risk.

Just ensure that you will be able to afford the increasing amount of amortization once interest payments are done if you are one of those borrowers considering of availing only mortgage.


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