What Is An Interest-Only Mortgage? Is It Right For Me? By Max Pain At Isnare.com Ezine Articles

Consumers are generally categorized into three classes:

1. Those who shudder at the very thought of paying interest.

2. Those who are willing to pay interest in order to have more purchasing power based on their current income level.

3. Those who view interest as a cost of doing business and use it to their advantage. Yes, paying interest does bring some financial advantage!

There are many common misperceptions about interest only loans. The first one many people have is: “All I will ever do is pay interest and I will never be able to pay off the principal of my home.” An interest-only loan can best be described as a mortgage (loan) that allows the mortgagor (borrower) to pay only the interest of the loan for a specified period of time typically during the first 2 to 10 years of the loan.

While the first classification of our consumers are frantically reaching for a brown paper bag, in which they can breath heavily in and out-of, the other two may also be wondering why anybody would want to pay interest-only for up to one-third of the loan’s lifetime. The reasons are as follows:

1. Paying the interest only during the early parts of the loan excludes the amount of the monthly payment that would have been applied toward the principal of the loan thus lowering the payment. In a market with high housing costs this makes getting into a home more affordable.

2. Leverage. Why pay down a mortgage at 6% when a portion of that payment could be invested somewhere else with a higher return?

3. Snowballing. Suppose a borrower could free up some of his mortgage at 6% to be applied toward his or her credit card that has an interest rate of 18 – 24%. Once he/she had that card paid off with money saved by not paying toward the principal, he/she could then apply the saved principal plus the recently paid off credit card payment toward the other high interest debts – we know you have them – viola snowballing.

To take advantage of an interest only loan, check out our recommended lenders. After careful research, our gurus recommend these lenders:

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