Interest-only mortgages have become increasingly popular in todays world. They are aggressively promoted by leading lenders and brokers. But are they for everyone? An interest-only mortgage is ideally suited for someone whose income is mostly in commissions and bonuses, or for someone who expects to earn a lot more at a future point of time or someone who is confident that his present investments will make money at a later stage. A mortgage is considered interest-only if the scheduled monthly payment towards mortgage which the borrower is required to make consists of the interest only. The option to pay the interest is for a specified period. It could be for 5 years, 10 years and sometimes even 30 years. If the borrowers prefers, they also have the option of paying more than interest if they want to. When the borrower pays the interest every month during the specified interest-only period, the payment does not include any repayment of the principal amount. The principal amount or the initial loaned amount remains the same. Interest-only mortgages work best for borrowers who have a valid reason for borrowing money on interest for a lower initial required payment. Importantly, it is for those people who are ready to deal with the consequences. Generally speaking, interest-only mortgages are not advisable if you are a regular wage earner. This is so because regular wage earners take out moderate-sized home loans and basically dont have a set strategy for investing the savings. With interest-only mortgage loans, we have seen that you pay only the interest on the mortgage, on a monthly basis for a specified period. With the result the principal remains as it is and at the end of the specified period of time, you either refinance or pay the balance in lump sum, or start paying off the principal. In all these cases your payments go through the roof and this is the reason financial advisors dont recommend interest-only mortgages to regular wage earners. You can get detailed information about every aspect of an interest-only mortgage loan either through online resources or from your financial advisor. You can also go through any of your friends who have availed these loans in the past. |
