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Interest Only Mortgages

 

Interest only mortgages have become very popular in the last few years. Interest only mortgages are mortgages in which the monthly mortgage payments consist of interest only. Some people opt to take out an interest only mortgage because they cannot qualify for a mortgage that requires borrowers to pay both the principal and the interest in a monthly mortgage payment. The loan balance on the mortgage stays the same since the borrower is only paying on the interest. This can be a double edged sword for many borrowers. This is because the loan balance does not decrease over time so you could end up with a higher monthly mortgage payment because the payment will be raised to the fully amortizing level.

Borrowers should thoroughly assess their current and future financial situation before deciding to take on an interest only mortgage. If you take on a lower initial mortgage payment then you will need to budget and prepare for your future mortgage payments which will be much higher than your initial payment.

If you decide to take on an interest only mortgage you should try and get one that has a short interest only period. You will pay more in the long run by paying only the interest on your home. You should try to pay extra payments as often as you can to reduce the amount of principal that is owed on your mortgage.

Some people think that the value of their home will increase over time and that this will help them deal with their interest only mortgages. This can be very risky for borrowers because you can never predict what the housing market will be like. The economy has shown a pattern of fluctuation and many people can get into their heads very fast by relying on their homes to increase in value. Borrowers should not rely on their homes increasing in value and should prepare for the worst so that they do not default on their monthly mortgage payments when their interest only time period cones to an end. If you are thinking about taking out an interest only mortgage you should consult a financial institution and see what your best options are.

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