Is An Interest Only Mortgage Right For You?

An interest only mortgage is a type of mortgage where the
homeowner pays the only the interest on the home loan only.
With this type of mortgage, your monthly payment will be lower.
This is an option for many homeowners, however there are some
things that you need to be aware of.

Even though your scheduled payments will be for the interest on
the loan, many homeowners choose to pay a higher amount to
reduce the principal on the loan.

It is important to remember that you are paying the interest on
the mortgage only. This means that the payments that you make
are on the interest only and will not be applied toward the
principal of the loan. Therefore the balance of the principal
will not be reduced.

For those people who do not have a set monthly income, or
incomes that vary from month to month, an interest only
mortgage can be a great benefit. The payment is so much lower
than a traditional loan that the borrowers can actually apply
for a higher amount for their home loan because the payment
would be lower than a traditional mortgage.

Borrowers who use a second mortgage to finance their down
payment. Usually use the mortgage with interest only as the
main mortgage. This is done because a second mortgage has
higher interest rates. When the interest only loan is used as
the primary mortgage loan, there is more money to pay off the
higher interest loan.

It is important to remember that the low payments associated
with an interest only loan are for a limited amount of time.
When the life of the interest loan is done, than your rates
will go up drastically especially if you have not made an
effort to pay on the principal amount during the interest only
period of the loan.

If you have a 30-year mortgage of 360,000, your principal
payment would be $1,000 dollars a month. Your payment at the
end of a 5-year interest mortgage loan would increase $1,200.
If you take out a 10-year interest only loan, at the end of the
loan your payment would increase to $1,500 per month with the
interest only option ends. Basically, the longer you take your
interest only loan out for, the higher your principal payment
will be when the interest only option ends.

The best way to assure that your principal payment is not sky
high when the interest only loan ends is to make payments on
the principal as often as you can. When you do this, you are
keeping your principal payment at a level you can afford.

Interest only mortgages are an excellent and convenient way to
control your mortgage. However it is important to remember that
the interest on an interest only mortgage is an adjustable rate.
This means that your payment may go with the interest rates. The
good side to this is that if the interest rates go down, so does
your payment.

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