How Interest-Only Mortgages Work and Why They're A Good Solution for Some Buyers

Dated: June 17 2021

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How Interest-Only Mortgages Work and Why They're A Good Solution for Some Buyers

 

In case you want to borrow funds to purchase a home, it is important to opt for the apt mortgage product. This article will look at the way in which interest-only mortgages work and why they function as the ideal alternatives for a few homebuyers.

 

How Interest-Only Mortgages Differ From Conventional Ones

 

It is evident from the name that interest-only mortgages are loans, wherein you are merely required to pay off the interest portion of the loan every month for a particular term. These loan lengths’ can go on for ten years, while five or seven is especially common. After this period ends, you will have adequate alternatives. A few opt to refinance their mortgage into a new term and many others choose to make a lump-sum payment for the payment of the balance. Most importantly, during the interest-only period, the principal is not paid off until a little extra is paid.

 

The Pros And Cons Of Interest-Only Mortgages

 

Interest-only mortgages are a very common choice since they come with several advantages. Needless to say, your monthly payments will be lesser during the interest-only period as you won’t be dealing with the principal of the loan. With a lower monthly payment, you will be left with enough money that can be used for other purposes, including investing. Moreover, your overall monthly payment during the interest-only period has to be tax-deductible, which could contribute to a refund each year.

 

Do remember that interest-only mortgages come with a few cons too. For instance, in case your mortgage interest rate can be adjusted, you may pay more in interest, in comparison to a scenario wherein you had locked in. You must focus on financial discipline. After the end of the interest-only period, you may witness a substantial increase in your monthly payment for covering both interest and principal.

 

Who Should Consider An Interest-Only Mortgage?

 

Interest-only mortgages work well for those individuals or families who know that their income will witness a substantial increase in five or ten years. On the other hand, in case your income is sporadic, then you would seek the alternative of paying lower payments in a few months and more substantial payments in others. Essentially, these mortgages offer flexibility that is not offered by other mortgage products. 

 

Clearly, in some cases, interest-only mortgages work very well. If you want to learn more regarding how an interest-only mortgage could be right for you, get in touch with our professional mortgage team today and we will help you find perfect mortgage financing for your needs.

***DISCLAIMER - I am not a licensed loan originator or mortgage professional. This article is meant to
show
different financing options and help you start a conversation with your mortgage lender. If you need
help
locating a lender, I can refer you to one of my trusted partners!***

Blog author image

Beau MacDonnell

I am a Realtor in the Central Phoenix area that specializes in residential properties. For the last 9 years I have lived and worked in the East Valley as well as the greater Phoenix area. Our brokerag....

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