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  Category: Articles » Finance » Mortgages » Article

Should you Get an Interest-only Home Mortgage?

By Mark Lambie

Before you consider taking out an interest-only mortgage, you
should first understand what they are. Unlike traditional, fixed-
rate mortgages, interest-only mortgages allows the borrower
to initially pay the interest on the principal for a short period of
time, rather than making payments on both the principal and
the interest. This is how it works: say, for example, you've
taken out a mortgage for $100,00.00, which would require a
monthly payment of around $1,000.00. However, with an
interest-only mortgage, the same payment would only amount
to around $695.00. You could use the extra money to pay
existing debts, like credit cards or student loans, or perhaps
invest it.

The concept of an interest-only home loan is not a new one.
A descendant of the jumbo market, these types of mortgages
were initially geared towards those who intended to utilise the
excess cash for other types of investments. This is an ideal
option for the market-savvy investor, as it frees up some
income for other projects. However, this type of mortgage
has now entered the mainstream market, and is available to
most home buyers.

There are many benefits associated with taking out interest-
only loans. They allow younger buyers to take advantage of a
developing real-estate market, giving them the opportunity to
afford a slightly higher priced home.

Before taking out an interest-only mortgage, there are few
things that you must take into consideration. While the
thought of only having to pay for interest for the next few
years may seem very tempting, you must remember that when
the interest-free grace period is over, you will have higher
payments than you would have with a traditional mortgage.
Many young couples do not account for this, assuming that
they will be earning more money in the future, not anticipating
that they may face financial hardships down the road, thus
putting their home at risk.

While there are many advantages to taking out an interest-free
mortgage, it is important to remember that the grace period
will not last forever and that the monthly payments will
eventually go up. As long as you make financial plans for the
future, taking advantage of an interest-only mortgage could
allow you to increase your financial well-being, bringing you
peace of mind.

About the Author
Mark Lambie is the founder of The Loan House a website that allows consumers to quickly and easily get online mortgage quotes and mortgage information.

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