The Advantage of Interest Only Mortgages

Interest Only Mortgages
Interest Only Mortgages are mortgages that allow borrowers to pay only the interest on the property for a pre-determined time. Although borrowers are required to pay the interest on the mortgage only, if the borrower chooses, he can also make monthly mortgage payments as well.

Interest Only Mortgages of the 20’s
The Interest Only Mortgages of the '20s were interest-only for the entire life of the loan which was usually about five to 10 years. This meant that the loan balance was the same at maturity as at the beginning of the loan. Borrowers at that time who were still in their homes would then refinance the mortgage loan.

Interest Only Mortgages of Today
Interest only mortgages of today are not interest-only for the entire life of the loan. Today, interest only mortgages are only for the first five or more years; usually up to 10 years. At the end of the interest only period, the mortgage loan payment is increased to the fully amortizing payment point. The mortgage payment at the end of the interest only term will, therefore, be a higher payment than what the homeowner is generally used to.

Some homeowners sell their homes before the interest only term is up. Selling the home before the interest only term is completed will only benefit the homeowner if the home has appreciated in noteworthy value to sufficiently cover any and all remaining debt owed on the homeowner’s home.

Interest Only Mortgages may possibly be a good option for a first time homebuyer or even a seasoned homebuyer who is looking to pay lower payments in the beginning of his or her loan as long as he or she fully understands what to expect after the interest only term is completed and is also prepared for the increase in mortgage payments at the end of the term.

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