Interest Only Mortgage Loan is a mortgage where the required monthly payment is used to pay only the interest and no amortizing is mandatory. The most common form of interest only mortgage loan is a mortgage where this interest only period lasts for a pre-determined amount of time, such as 5 or 10 years. You will also be allowed to amortize if you want to in order to lower the sum owed. If you prefer to pay nothing but the interest each month, the sum owed will be the same after 5 or 10 years as when you obtained your interest only mortgage loan. Interest only home mortgage is a common form of interest only mortgage loan, since it makes it possible for people to obtain a more expensive home than with a standard home mortgage.
How an interest-only mortgage loan work can be illustrated by the following example. A standard 30-year mortgage loan of $100,000 at 6.25 percent interest will require monthly payments of $615.72 in order to be paid off over 30 years. If you instead choose an interest-only mortgage loan, you will only have to pay $520.83 each month in order to fulfill the obligations linked to your interest only mortgage loan. After 30 years you will still owe the creditor $100,000 and your interest only mortgage loan will typically be converted into a standard mortgage instead of an interest-only mortgage loan.
This is naturally a highly hypothetical example that only serves to illustrate the basic idea of interest only mortgage loan. In reality, interests rates changes over the years and interest-only mortgage loan is typically offered for a shorter period, such as 5 or 10 years after which you will have to begin amortizing the loan. A creditor can sometimes allow a completed interest only mortgage loan to be converted into another interest-only mortgage loan, particularly if the first interest only mortgage loan only ran over 5 years.
Whether or not interest only mortgage loan will be beneficial for you will always depend on your specific situation. Interest only home mortgage can be a good idea if you can only afford a low initial mandatory payment since interest only home mortgage requires you to pay nothing but the interest during the first year. It is important that you realize that interest only home mortgage means that you will be forced to pay more once the interest-only period is over in order to pay back your interest only home mortgage. Interest only home mortgage can, for instance, be an option for a person with a comparatively low income that predicts his or her income to rise in the future as his or her career develops, and that he or she will be capable of amortizing the interest only home mortgage as soon as the interest-only period is over. It is common for most of us to earn a relatively low wage at the beginning of our career and gradually earn more and more as we gain experience. For a young couple buying their first home, interest only home mortgage is a way of paying little money when their income is low, and more money later in life then their income has increased. After 5 or 10 years, they are more likely to be able to amortize their interest only home mortgage. With a home mortgage the requires interest as well as amortizing, most people are forced to begin with a “starter home” and move to their dream home later when they can afford to pay for it. Interest only home mortgage makes it possible to skip this first home, and settle in the desired home from the beginning since interest only home mortgage require lower payments during the first years.
Interest only home mortgage is also appreciated by those who have a fluctuating income, since they can pay nothing but the interest when money is scarce and make larger payments to the principal when they can afford it. This will, however, require a willful disposition since it will be tempting to pay only the minimal amount even when you can afford to amortize your interest only home mortgage. If you do not pay more than the interest on your interest only home mortgage, you will naturally end up owing a lot of money when the interest-only period is over.
There are naturally several hazards connected to the interest-only mortgage loan, and you must take these into consideration before you decide if an interest-only home mortgage is suitable for you. You can for instance never be 100 percent sure about your future income. Will you be capable of paying back your interest only home mortgage if your salary does not increase? How would will unemployment or illness affect your possibility to amortize the interest only home mortgage after 5 or 10 years? You should also take into account that an interest-only mortgage loan typically comes with a higher interest than traditional loans. Obtaining an interest only home mortgage to finance a house can, therefore, be more expensive than it would be with a traditional home mortgage.
Some people erroneously believe that the interest rate for an interest-only mortgage loan will be fixed for the entire interest-only period. This is very rarely the case. In theory, the interest rate can, of course, be fixed for 10 years, but it might also be fixed for no longer than one month. You will always have to negotiate these conditions yourself, regardless of if it is an interest only mortgage loan or not. It is advisable to speak to several creditors about interest only home mortgage before you decide which one that is best for you.