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Pros and Cons of Interest Only Mortgage Loans
Loan & Credit FactsOnce you find the house of your dreams, you're going to have to start thinking about mortgage loans.
While you can get help finding the right loan by visiting a mortgage broker, they will still give you various options to choose from. One option you may come across during this experience is interest only mortgage loans.
Interest-only mortgage loans are usually an option to another identical and traditional loan. For instance, you could be offered a certain loan with a bank, and they give the option to make it an interest only loan as well.
Then, it is up to you, with the help of your mortgage broker, to decide if interest only mortgage loans are right for you.
Essentially, with interest only mortgage loans, you will only be paying the interest on your loan for a set number of years. This is usually either five or ten years. For this period, in the beginning of your loan, you only pay interest. This can lower your monthly payments significantly.
On the downside, during this period, unless you pay more than the minimum monthly payment, you won't be reducing your mortgage loan amount. That causes you to have no equity on your home where you would have with a traditional mortgage loan.
There are upsides and downsides to interest only mortgage loans. They should only be used if you get a significant benefit from it.
For example, if you are looking for a house that is more expensive than you could afford, you can often qualify for more expensive houses with interest only mortgage loans.
Then again, you should only choose this route if you plan to live in the house for the length of the loan; either fifteen or thirty years. If you want to sell the house after only a few years, you'll find that you haven't made any money on the deal because you were only paying interest and not reducing the loan.
Another way that interest only mortgage loans are good is because the monthly payment is lower than normal while you're in the interest only period. If you have a low income, but expect that things will get better, this can be a good option.
Before you decide to choose one of these kinds of loans, you should do as much research as possible. A good, licensed mortgage broker will have a lot of information for you. They will have good advice and will be able to evaluate whether or not this would be a good idea both in the short and long term.
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