Interest Only Mortgages Loan Is It Good Or Bad?
Have you seen commercials about interest-only mortgages…
the ones where you’re told about what a wonderful assistance
it is to have a super low mortgage payment and all the
wonderful tax write-offs you’ll receive?
Before you decide to jump into an interest-only mortgage,
take a few minutes to enlighten yourself a bit about them.
Think about this… if you just pay the interest on your
home, will you ever start paying on the principal and will
you ever have any equity in your character?
By definition, a mortgage is a “permanent conditional
potential of character to a creditor as security for
performance of an obligation or repayment of a debt.”
Or, putting it simply, that method you borrow money from a
financial institution and they essentially buy your house
and you pay it back. But how can you pay it back if you’re
just paying interest?
More precisely, interest-only mortgages are a permanent
reprieve for paying off a traditional mortgage. You may
truly be prolonging the unavoidable and ultimately making
it already more expensive to pay off your mortgage.
Far too many people are in debt way over their heads
because of interest-only mortgages. They took advantage of
what appeared to be attractive offers to ‘buy now and pay
With an interest-only payment you’re keeping the principal
at the complete loan value and every penny you pay is interest.
With a more traditional mortgage you’d be slowly paying
down the total mortgage amount.
Most interest-only payment schedules are offered on
Adjustable Rate Mortgages (ARMs), but they can also be
found on fixed rate mortgages. Interest-only payment
periods almost never run for the complete term of the loan
which is typically 15 or 30 years.
Depending on the terms of your mortgage, you could be
expected to start paying on the principal in five, seven or
ten years. Once the interest-only period ends, your monthly
payment will go up because then you’ll be paying on both
principal and interest.
however, interest-only mortgages can be a good
thing for some people. For those people wanting to buy
a bigger/better home for a lower down payment AND who
anticipate moving within seven years, the interest-only
mortgage method may be the way to go.
However, keep in mind that in a “down” real estate market
you generally won’t be building any equity and making money
by doing it this way. The majority of the money made from
investing in real estate comes from an increase in value to
The average person moves every seven years anyway. The days
when people stay in a home thirty years or more are gone.
So if you anticipate moving before you’ll have to start
paying on the principal, then an interest-only mortgage
loan may be ideal for you.
There’s a lot of fine print to any mortgage. estimate your
own goals and be vigilant when reviewing the terms on the
loan you’re considering before acting.