Interest Only Mortgages
Interest only mortgages allow your monthly payment to be
just the amount of interest due on your mortgage. Many lenders are advertising
these loans today and for some home owners they may be a wise decision. However,
you should think long and hard before deciding an interest only home loan is
right for you.
Why interest only? Interest only
home loans may be appropriate for a person who earns a lot of income through
commissions or bonuses. If a buyer believes that his/her income will be
significantly larger in the future an interest only loan might also make sense.
An interest only home loan could work well for the home owner who really invests
or saves the money not spent on a house payment.
The advantages - A home buyer may be able to purchase a larger home. The
borrower can still deduct the interest from his/her taxes. The money not spent
on the principal payment can be invested or saved.
The pitfalls - Interest only home loans are for a specific and generally
short duration. At the end of that time the buyer will be expected to pay off
the loan, to begin making conventional payments or to refinance the loan. The
home is not building equity. A slump in home prices can make the mortgage due
more than the value of the home. If the income or credit of the buyer
deteriorates he/she may not be able to pay the mortgage off or refinance the
loan.
Although tantalizing, interest only mortgages are for a select few home buyers.
Mortgage Glossary3
