Enjoy Now, Pay Later With an Interest Only Mortgage
Homebuyers looking to break into the housing market may be enticed with such ads as "low interest rates" and "low monthly payments," but before signing the dotted line, one should understand the fine print to see if an interest only mortgage loan is right for you.
The Basics of an Interest Only Loan
Interest only mortgages can make home purchasing more affordable with lower monthly payments, and that is exactly what mortgage lenders are offering as an option to homebuyers. With an interest only loan, you are required to pay just the interest for a fixed amount of time during the loan term.
Interest only loans are offered with both adjustable rate mortgages (ARMs) and fixed rate mortgages. But unlike other mortgages, your monthly mortgage payments do not go towards repaying a portion of the principle, therefore reducing the initial monthly payments.
What to Look Out For With an Interest Only Loan
There are some risks that borrowers must be prepared for with interest only loans. Once the interest only term ends and payment is required on principle, borrowers can face increased mortgage payments. By financing with an interest only loan, you are choosing not to lock in the current interest rate and subject to rising interest rates later down the line. Interest only mortgages are popular in expensive states/situations, such as a California mortgage loan.
An interest only loan works well for those who are expecting an influx in income and can repay larger sums at a later time and for those who are also looking to refinance or sell during the interest only terms. Click to use our interest only mortgage calculator.
