Information on Interest Only Mortgage Rate

2007-03-08 10:33:40

( Financial )



Interest only mortgage rate is not a new offer actually. It has been around for much longer than people think. But right now, interest only mortgage rate offerings are flooding the market and opening the real estate market up to more people. Before you think to take advantage of an interest only morgage such as a 5 1 arm interest only mortgage loan, think really hard if this is the right one for you.

Interest only mortgage rate allows you to take a loan to finance your home and then make only interest payments instead of a full amortization. Usually, you will have a number of years where you will have a fixed interest rate and where you are required to make only mortgage interest payments.

For example, a 5 1 arm interest only plan will allow you to get a mortgage with fixed interest rates for the first 5 years. For this first 5 years, you’re only required to make interest payments. Since you’re not required to pay any on your principal, you’ll have lower payments for the first five years. On the 6th year of the loan and onwards to the full life of the interest only morgage loan, you’ll be paying full amortization at an adjustable rate mortgage. At this point, you will be paying interest payments as well as payments to reduce the principal.

Now, interest only mortgage rate has its benefits. If you are a wily investor, you can refinance your home, then use the differential between what would have been normally your monthly amortization and your interest only morgage payment for investing in high-yield investments. This way, you are fully utilizing the money saved from payments.

If you’re looking to resell your home in the future, the money freed up by interest only morgage payments can be used to improve your home for the purpose of adding to its resell value.

If you’re an old person who is thinking of retirement soon, you may wish to use the extra money to increase your retirement fund contributions. And if you have children, you may also use the differential to finance your children’s educational plan for greater returns.

But if you’re just somebody who wishes to obtain lower payments right now so that you can apply for more loans on your current paycheck, you may be setting yourself up for a fall. When you apply for an interest only mortgage rate, you are assuming that after the fixed term period has ended, you’ll be able to afford the considerable increase in monthly payments. With your money stretched out across various debts, you might not actually meet them.

And since you’re not making any payments toward your equity for the first five years or so of an interest only mortgage rate, when you find yourself needing to sell your home and the prices did not rise but even decline, you will be spending money on sales costs and probably selling your home at a loss.


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