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I am quite sure you must have heard of interest only mortgage. We all know that this type of loan is extremely beneficial for some people. Now the questions that you may think of are: Who are the people who should opt for this kind of option? Is there a distinction between a conventional mortgage and this type of option? Why should people opt for this type of option? Who can benefit from this type of option? These are just some of the questions which many people have and in order to find answers to these questions regarding interest only mortgage, continue to reading this article.
We can define interest only mortgage as a loan where the borrower do not have to repay the principal amount before the specified period is over but he has to repay the interest accrued on the amount on a monthly basis. If a person opts for interest only mortgage, both the lender as well as the borrower would fix a period during which the borrower simply have to repay the interest on a monthly basis and after the maturity of that period, the borrower has to repay the principal amount. Most of the time, the period for interest only mortgage ranges from 5-10 years. In the interest only mortgage, the principal amount will remain the same even though the borrower pays the interest every month. Under the interest only mortgage, the borrower can pay an amount more than the accrued interest but this is not obligatory. If this is done then the principal payment would be less for the borrower. Traditional mortgage is completely different from interest only mortgage. In traditional mortgage the monthly repayment consist of the interest as well as a part of the principal amount. On the other hand, in interest only mortgage the monthly payment consists of only the interest. Usually the amount payable on traditional mortgage would decrease over the years but the amount payable on interest only mortgage after the expiry of the specified period would increase.
Any person who has genuine need for money with a preference for low initial repayments can opt for interest only mortgage. No one would deny that you have the option of repaying less amount of money every month but this is only before the expiry of the specified period. After the maturity of the period specified in the interest only mortgage, the borrower is obligated to repay the principal amount. So one can only enjoy the advantages of interest only mortgage before the expiry of the agreed period. Interest only mortgage is an excellent option for those who wants to purchase an asset that is expected to appreciate in value after some years. Those people who have fluctuating income can also opt for interest only mortgage. However, you should remember that not everyone is suitable to take interest only mortgage.
You should opt for interest only mortgage if you can actually derive any advantage from it. It would not be wise to take interest only mortgage simply because you only have to pay the interest in the first few years. |
