An interest only mortgage has scheduled monthly mortgage payments consisting of interest only. Generally, the length of the interest mortgage payments last for a period of 5 to 10 years. If you pay only interest during this period your proceeding balance will remain unchanged. However, you may choose to pay more than the minimum interest payment every month.
An interest-only home loan represents a higher risk for lenders; hence, your mortgage loan will have a somewhat higher interest rate. If you expect a substantial increase in income in the forthcoming years the interest only mortgage loan gives you leverage financially. The excess savings from a lower interest only monthly payment can be used for various purposes, ranging from investment into the stock market, to home renovations, among other uses.
Interest-Only Mortgage Loans Benefits
- Lower monthly payments during the interest-only payment period
- If you have irregular income, like bonuses, commissions, etc.; an interest-only mortgage gives you the flexibility to have increased cash flow to meet your other financial goals
- Increase your cash flow, take the extra cash and invest the rest
- Real estate investors can leverage the savings and invest in other properties
An interest-only mortgage gives you the option of leveraging your dollars by taking advantage of more affordable mortgage options. More new homebuyers are able to enter the housing market by using low interest-only mortgage payments. Also, if you are a current homeowner looking to upgrade you can leverage the interest-only mortgage loan into a more expensive home that otherwise would be unaffordable.
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