Is An Interest Only Mortgage Right For You? By John Wesley At Isnare.com Ezine Articles

An interest only mortgage is a type of mortgage where the homeowner pays the only the interest on the home loan only. With this type of mortgage, your monthly payment will be lower. This is an option for many homeowners, however there are some things that you need to be aware of.

Even though your scheduled payments will be for the interest on the loan, many homeowners choose to pay a higher amount to reduce the principal on the loan.

It is important to remember that you are paying the interest on the mortgage only. This means that the payments that you make are on the interest only and will not be applied toward the principal of the loan. Therefore the balance of the principal will not be reduced.

For those people who do not have a set monthly income, or incomes that vary from month to month, an interest only mortgage can be a great benefit. The payment is so much lower than a traditional loan that the borrowers can actually apply for a higher amount for their home loan because the payment would be lower than a traditional mortgage.

Borrowers who use a second mortgage to finance their down payment. Usually use the mortgage with interest only as the main mortgage. This is done because a second mortgage has higher interest rates. When the interest only loan is used as the primary mortgage loan, there is more money to pay off the higher interest loan.

It is important to remember that the low payments associated with an interest only loan are for a limited amount of time. When the life of the interest loan is done, than your rates will go up drastically especially if you have not made an effort to pay on the principal amount during the interest only period of the loan.

If you have a 30-year mortgage of 360,000, your principal payment would be $1,000 dollars a month. Your payment at the end of a 5-year interest mortgage loan would increase $1,200. If you take out a 10-year interest only loan, at the end of the loan your payment would increase to $1,500 per month with the interest only option ends. Basically, the longer you take your interest only loan out for, the higher your principal payment will be when the interest only option ends.

The best way to assure that your principal payment is not sky high when the interest only loan ends is to make payments on the principal as often as you can. When you do this, you are keeping your principal payment at a level you can afford.

Interest only mortgages are an excellent and convenient way to control your mortgage. However it is important to remember that the interest on an interest only mortgage is an adjustable rate. This means that your payment may go with the interest rates. The good side to this is that if the interest rates go down, so does your payment.

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