Interest Only Mortgages and Equity Creation
Although a mortgage is simply a loan that allows you to purchase a home, it is probably the most important financial decision you will ever make. Because it will have such a large effect on your financial and personal life, it is important to get a mortgage with terms that suit your needs. If you are interested in the Interest Only Mortgage, we recommend that you continue reading about the important relationship between the Interest Only Mortgage and equity.
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Overview of the Interest Only Mortgage and Equity Creation
If you are interested in a Interest Only Loan, it is important to understand the unique relationship between the Interest Only Loan and Equity Creation. Equity is the amount of money that you have paid on the principal portion of your loan. Since you pay only interest for the first portion of your loan, you do not build equity for a great deal of time with the Interest Only Loan.
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Common Questions: Advantages and Disadvantages of the Interest Only Mortgage and Equity Creation
• The main disadvantage of the Interest Only Mortgage is that you do not begin to build equity until you begin making payments on the principal. The whole reason for homeowning, from a financial perspective, is to build equity. Once you have a substantial amount of equity, you can use it to take out other loans such as the Home Equity Loan or the Home Equity Line of Credit.
• One advantage with Interest Only Mortgages is that many lenders allow you to make additional payments that can be applied directly to your principal during your interest only period. Although you can’t usually do this on a monthly basis, you can do it periodically. Therefore, if you have erratic income, you may want to use the extra cash from more prosperous months to build your equity. Some lenders charge a fee for this extra service, but many also have programs designed specifically for this purpose.
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