Interest Only Mortgage

Interest Only Mortgage

The term interest only mortgage is misleading. Obviously, there is no such thing as an interest only mortgage, because sooner or later you will still have to pay back the loan principal. The thing to remember is that when you get an interest only mortgage, what you’re really getting is an interest-only payment method but somewhere along the line, the actual loan has to be repaid.

You should also bear in mind that the actual benefits of interest only mortgages are frequently overstated. With a standard mortgage, as much as 95% of each dollar paid to the lender may be swallowed up in loan interest. Therefore on a $100,000 standard loan with 7% interest, the total payment could be $700 with the $665 going to interest and only $35 for equity.

A Brief History of Interest Only Mortgages

Interest only mortgages have been available for some considerable time, and the idea behind them was developed from the less rigid and innovative jumbo mortgage markets. Consequently, such mortgages are often a loan type preferred by smart investors and better off clients, who may decide to utilize the principal portion of their payment on their wider investments.

Owing to interest only mortgages being akin to jumbo loans, the difference in monthly payments grows with larger loan amounts. As an example, in a $100,000 interest only mortgage loan, the per month difference could be $100. However, for a loan of $1,000,000 on similar terms, the difference per month jumps to $1,000, a substantial amount that informed investors might usefully employ. The smart investor can maximize his resources using the money he gets from the per month difference growth of an interest only mortgage.

You can see why big-time investors often prefer interest only mortgages. However, it is wise to be aware that there are some considerable risks connected with them, especially when it comes to stocks.

Interest only mortgages have payment periods based on adjustable rate mortgages. However this is not always the case, and interest only mortgage payment schedules are also offered in fixed rate mortgages as well. Interest only mortgages have also gone mainstream so virtually anyone can borrow money with this type of loan.

Temporary Payment Periods

The expiration date of an interest only mortgage payment is usually at the end of a set period. This brings interest only mortgages into line with normal mortgages. You must fully understand that when that expiration date occurs, your payment will then rise to include principal and interest.

Advantages of Interest Only Mortgages

Interest only mortgage payments have some advantages. They can help investors in accumulating assets, because they do not require so much in repayments during the initial years, and the payment differential may be used for a cash investment. Extra cash available may also be used for, retirement money, college money and for other purposes.

As with most money matters, interest only mortgages are a specialized subject, and those unskilled in financial matters are advised to seek the advice of a qualified advisor.