But In Reality, The Interest Rates Are Often The Same, If Not Higher

Category: Finance, Mortgages.

If you' re new to buying a home, you will find that there are as many ways to pay for a home as there are homes available to buy. In the case of the newer interest only mortgages, you need to be certain that you know what you are signing up front before you actually put your name on the final papers.

This confusing maze of financial terms can cause even the more educated of individuals to become frustrated at the process. Though the loan agreement sounds good on paper, what will it mean for your life? This will typically only last for a certain time period of five to ten years. When you sign up for an interest only mortgage, you are agreeing to pay only interest in the beginning instead of paying toward the principle of the home you are purchasing. For the bank, this works well because they will have their part of the loan first. But this option of an interest only mortgage does work for some homeowners.

But for the borrower, they are not paying down the actual cost of the home, which means that the loan balance is not changing, even as they make their monthly payments. Those that have incomes that fluctuate will like the convenience of the lower payments of the mortgage, allowing them to eventually be able to pay more toward the home as their financial situation stabilizes. But when you' re not paying off the principle at the same time, you might not be the best candidate for this kind of loan as you will only be stalling the inevitable. Borrowers also have the option of paying toward the principle if they come upon more money in their lives. Those that want to buy a bigger house, but can not afford it at the current time, the interest only loan will be more useful. Of course, if you' re not making more money at that point, it may become a problematic situation.

You can purchase a more expensive house assuming that you will be making more money by the time the interest only period is over. Those that want to invest the money they are saving on their initial house payments might be able to make more money to put toward their house if they are disciplined. Those that want to flip houses quickly might also want to turn to an interest only mortgage to help facilitate this situation. If you will honestly invest the excess money you have and are making enough return to put more money toward your home, then this is a good situation. By not having to invest a lot of your money initially, you will be able to quickly sell homes for a profit and pay off your payment terms. But there are many hazards that can come along with an interest only mortgage. There are other reasons why you might want to consider an interest only mortgage- to help with financing a second home, to free up money for other projects, and to help someone else with their home purchase.

Just as with a traditional mortgage, you will still need to be careful about the interest rate that you are paying. But in reality, the interest rates are often the same, if not higher. Often, lenders who offer this option will make the interest rate look as though it is lower, and thus it would be advantageous for you to take on this kind of loan. So, be sure to look over the fine print of your agreement. You will need to start paying that principle quickly enough. Interest only mortgages are certainly a good way to free up money for other ventures, but you still need to use that money for those ventures- and not just for other material purchases.