Interest Only Mortgage
Taking out a mortgage loan is probably the most important financial decision you will make in your entire life. For most people, it is also the most expensive financial venture they will take. Therefore, it is very important that you choose a mortgage plan that suits your needs. When searching for a mortgage to finance the purchase of your California home, we suggest considering the Interest Only Mortgage. Keep reading to find out more.
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Overview of the Interest Only Mortgage
An Interest Only Mortgage is unique to other mortgages because for the initial portion of their term, borrowers only pay the interest payments on their loan. For the latter portion of the loan, the borrower pays interest, plus the principal. The length of the initial and overall terms for the loan vary according to lender and borrower. This loan is often used by higher income borrowers that can afford to compensate for this loan’s potentially erratic behavior.
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Common Questions: Advantages and Disadvantages of the Interest Only Mortgage
- The main advantage of the Interest Only Mortgage is that the initial "interest only" portion of the loan offers borrowers very low payments. This leaves the borrowers with more money to use for other purposes.
• A significant disadvantage of the loan is that you will not build equity until you start paying money on your principal. For more information the Interest Only Loan and Equity, see our Interest Only and Equity article.
• Another disadvantage to the Interest Only Mortgage is that your monthly payments will significantly increase once you start paying principal in addition to your interest (AKA, the second portion of your term). At this point, many people refinance to a different type of mortgage for a lower interest rate, or sell their home.
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