What is an interest only mortgage?

Interest Only Mortgage - An interest only mortgage is a special mortgage set up where for up to 1/2 of the term of your mortgage you are paying for the interest only. In the early years of a mortgage it is mainly the interest, which is being paid with your monthly payments. With a $100,000 home at 6%, $500.00 per month will be paid on interest and only $100.00 per month will go towards the principal. With an interest only mortgage a person can pay $500. Per month, which is a savings of $100 per month at the time, allowing them to put that money to other use. Or if a person wanted to buy a more expensive house they could purchase a $120,000 and pay $600 Per month on an interest only mortgage.

A interest only mortgage is not a great as it seems. During the time that you are paying only on the interest, the principal is still remaining the same. So if you were to have been paying on an interest only mortgage for say 5 years on a 30 year term, you will still have 25 years left to pay on that term when your principal would then be included and interest will continue. Your payment would jump from $500 per month to maybe $723. And you will not pay anything towards the principal at this point.

A consumer has to hope when paying on an interest only mortgage that the house has continued to appreciate thus making it worth more money 5 years after he bought it. Or he will have no equity in the home at all after 5 years of making payments. So as you can see there are advantages and disadvantages to getting an interest only mortgage. Saving money now when you need to most may make it Worthwhile in your coming future to have to pay the larger then average house payments on the same home. Be sure to do your research and plan ahead if this is the type of loan that will best benefit you and your family in the years to come. On the average a mortgage is for 30 years and this makes it a long-term commitment.

So, if you are thinking about getting an interest only mortgage, you should take all of these facts into consideration, before making your decision. An interest only mortgage loan isn’t something you want to rush into without considering all of the consequences and knowing all of the facts makes it much easier to know whether or not a an interest only mortgage loan is right for you.

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