Best Interest Only Mortgage

2007-04-17 10:41:55

( Financial )



A mortgage is a system of using property as security for a debt to be paid. A mortgage loan may be repaid in different ways, specifically via a capital and interest amortization, where the capital and the interest are paid in regular intervals; an interest only amortization, where only the interest is paid initially; an interest and partial capital amortization, where the interest and part of the capital is paid regularly; and a no capital or interest amortization, where the loan is repaid at the borrower’s death.

In an interest only mortgage, the mortgage term is divided in two: an interest-only period, wherein the capital is not paid for throughout the set length of time, followed by an amortization period for the rest of the term, wherein the capital and the interest are paid for.

The advantage to an interest only mortgage is that you pay smaller amounts for the earlier repayments. This allows you to borrow more than you can initially afford and have additional time to earn the rest of the repayment. The best interest only mortgages allow you to invest your money in other assets, and are practical to get if you have a low monthly salary with a large annual bonus. The best interest only mortgages are useful when buying property that either is not likely to depreciate or will likely increase in value, since you can sell the property at the end of the term and use the money as payment for the capital. It also allows you to claim a tax deduction.

The disadvantage to an interest only mortgage is that you still have to pay property tax and buy property insurance. Some researchers have also pointed out that even the best interest only mortgages will lead borrowers to pay more than if they paid for the capital and the interest, since the term is usually longer.


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