Interest Only Mortgages

Interest only home loans are just like regular home loans except that instead of principal and interest being paid each month, only the interest is paid for the first five or ten years.

After the 5 or 10 years is up, the interest only mortgage holder will have to obtain the money to refinance or pay off the entire mortgage.

Interest Only Mortgage Advantages

Interest only mortgages may have advantages for the following buyers:

• Investors who feel they can invest in instruments that provide greater returns than home appreciation
• People who have erratic incomes or who periodically receive large bonuses or commissions
• People who are expecting a large windfall (maybe an inheritance) in the near future

Interest Only Mortgage Disadvantages

Disadvantages of this loan include;

• Anticipated income growth may fall short or not occur at all
• The home appreciation may not be what was anticipated
• People may not invest or save the capital money freed up by the loan and instead spend it
• If the loan is an ARM, the rising interest rate may increase the monthly payments by too much

With these inherent risks, due diligence needs to be done to make sure an interest only loan is the right loan vehicle.

Steve Wyrostek -HomeLoans.org Expert A 20 year plus veteran of the insurance industry, Steve managed departments in the personal and commercial lines areas of major insurers. He’s familiar with how insurance—ranging from boat to workers compensation—works.