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Interest Only Mortgage
ithin the past several more expensive house.
years we have witnessed
an unprecedented surge in For example, if you borrow
home prices in the USA, and as $200,000 with a typical payment
prices go up, it becomes schedule, you will pay about
increasingly difficult to finance $1,200 per month on a 6 percent
real estate purchases. When you loan. With an interest-only
apply for a loan, the mortgage mortgage, your monthly payment
lender wants to ensure that you will be just a thousand dollars
can make your monthly payments, saving you about two hundred
so they compare your average dollars a month.
monthly income to the amount of
your payment. If the mortgage Something to consider…
payment is too high, you will
probably get turned down for the The downside is that because you
loan, even if you have excellent are not chipping away at the
credit. principal balance of the
mortgage, eventually you have to
Lenders recognize this problem, pay it off and it will cost you
and in order to make it easier to more, in the future. Under the
qualify for a mortgage, they interest-only mortgage, you have
sometimes offer what is known as the option of paying interest
an interest-only mortgage. The only for the first 10 years of
way it works is that your monthly the loan term. The mortgage is
payment includes only the then fully amortized over the
interest you owe, without any remaining term of the 30-year
additional principal payment. loan. Your monthly payments
With an interest-only mortgage suddenly go up enough to make up
you can qualify for a bigger for all those months when you
mortgage, and afford to buy a didn’t pay any principal. In a
worst-case scenario, you could debts and increase your monthly
avoid paying any principal for 10 cash flow, you can always
years, and then wind up making refinance to a more conventional
higher payments owing the entire mortgage.
amount of your mortgage, after
making monthly interest-only Want a Bigger Home?
payments for the first ten years
of the mortgage. Another compelling reason to use
an interest-only mortgage is that
Benefits of an Interest-only it may allow you to qualify for a
mortgage bigger mortgage. For example, on
a $200,000 mortgage at 6 percent
A reason to use an interest-only interest rate, your traditional
mortgage is to give you a little principal and interest payment
extra money each month to pay off will be approximately $1,200 a
more expensive debts. Let’s say, month. However, if you decide to
for example, that you save $200 a get an interest-only mortgage,
month in payments on a $200,000 you can qualify for a larger
interest-only mortgage. If you $240,000 mortgage and your
use that savings to pay off a monthly mortgage payment will
nasty credit card balance of still be around $1,200 a month.
$1,800 that is costing you 18 per An interest-only loan may help
cent per month, you are making you afford a bigger nicer home.
wise use of your money. Within Please note that you will need to
six months you can retire the consult with a senior mortgage
high-rate credit card debt by consultant who can walk you
“borrowing” money from your through the mortgage process and
mortgage payments. After you use explain the difference between
an interest-only mortgage for a qualifying for a traditional
period of time to pay off some 30-year mortgage and an
interest-only mortgage. situation.
Flexibility and prior planning Optionwide Home Loans provides
are critical to financial real estate loans to every
success, and you should consider homebuyer and homeowner with all
all your options and then take types of credit and financing
advantage of the ones that are needs.
most appropriate to your specific
About the Author:
David Pham - http://www.Optionwide.com
Read more articles by: David Pham
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