Interest-Only Mortgage
Sometimes, a traditional mortgage just isn’t an option.
The monthly payments are either too expensive, or just not a good enough use of your money. In some cases, when you know what you’re getting into, an interest-only mortgage could be just what you need to finance the home of your dreams. This different home financing option comes with its unique set of pros and cons, but can be invaluable if managed properly.
How does an interest-only mortgage work?
- Each month, you have a monthly payment comprised of the principal - the loan amount itself - and the interest.
- An interest-only mortgage, as you might have discerned by now, allows you to defer the principal and pay off only the interest for a set period.
- As a result, your monthly payments are lower.
How could an interest-only mortgage hurt you?
- Well, by not paying the principal, you don’t technically pay off the loan, and don’t build any home equity. With a traditional mortgage loan, you own a piece of the house with every single payment made.
- Also, the principal has to be paid off eventually, so if you are planning on being in the home for a long time, payments are going to go up at some point. You don’t want to be shocked when they do.
Of course, what is key to remember is that if you are buying a property as an investment, and your home increases in value, and you can sell it at a profit before the payments rise, you will have made out like a bandit since you paid as little as possible for the mortgage. This is why a lot of folks opt for this product.
Also, if you want to own a house and anticipate being able to earn a lot more money later on in life, you might be able to plan ahead and make it work as well. An interest-only mortgage is not for just anyone, but under the right circumstances, it can work wonders.
We invite you to try out a mortgage calculator and see how the monthly payments shake out. See how much you could save by only paying the interest! Remember, though, that eventually, the principal of the loan is going to be due. So if you aren’t sure where you’re going to be down the road, or aren’t planning on the future as well as the present, don’t be so quick to jump all over an interest-only mortgage.
Contact Mortgage Foundation and ask us anything on your mind, including whether an interest-only mortgage is right for you. We’ll give you the straight answer, unlike other brokers who are only out for themselves.