Interest Only Mortgages Offer Reduced Monthly Payments

2007-03-08 10:33:40

( Financial )



As home prices rise, you may find that interest only mortgages are good alternatives to owning a home. In interest only mortgages, you pay only the interest (rather than the interest and the principal) on the loan for a specified period of time. After this period, your intrest only loans will then adjust to the going interest rate of a particular index, resulting to the amortization of your loan at an accelerated rate.

You gain more financial freedom in interest only mortgages because of the reduced amount of your monthly interest only loan payments. However, you should never forget that as long as payments on your loan remain interest only, your loan balance stays unchanged.

If you have other high interest debts, you will find that choosing intrest only loans on your first mortgage is a wise option. You can accelerate the repayment on your most costly debt while enjoying lower interest only loan payments.

Remember that interest only loan payments imply that you don’t pay any principal. Therefore, you are not accumulating any equity in your home. Your only hope to build equity is through appreciation in real estate values, and that depends on many external factors.

If circumstances should force you to sell your house at a price less than what you have paid for it, you end up owing the difference to your lender. This same situation would be true if the value appreciation at the time you sell is not substantial, and your profit will not be enough to offset selling costs like commissions.

When you can really afford to purchase a house but would not want to pay down the mortgage in order to use your money in higher-earning investments, interest only mortgages can help you maximize your investment leverage. Only loans with interest only mortgages will give you this kind of flexibility.


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