Buying a home and paying for a mortgage are very expensive financial commitments. It’s an important decision and one that should be considered with great care before taking the plunge. If you still want to purchase a home, but you are worried about the financial implications on your budget, you might want to look into an interest-only mortgage. An interest-only mortgage is a type of mortgage where you only pay the interest on your mortgage, never any of the actual loan. When you sell your home, you pay back the mortgage.
What are the advantages of an interest-only mortgage? The biggest advantage for many of these mortgage holders is the extremely low monthly payments as compared to traditional mortgages. This type of loan is also good for people who plan to be in their homes for only a short period of time. The term on this loan is short, usually only 5 to 7 years. People who plan to move soon may benefit from this because of the short-commitment and low payments. It can also be good for people with bad credit as it provides a way to improve their credit ratings.
Of course, with any advantages come disadvantages. Some disadvantages of interest-only loans are that you may not have enough money at the end of the mortgage to pay back the capital. If that happens, you may lose your home at a bad time in your life. Interest-only loan bearers must have a sufficient source of funding to pay back the mortgage otherwise it can be a disaster. Overall, it’s a financially risky option because you take the chance on your home depreciating and throwing your money down the drain.
As in all mortgages, it’s advisable to meet with a qualified mortgage professional to learn the details and legaldefinitions behind these types of loans. A good lender will tell you about the best types of mortgages for your unique financial situation. It’s your money, your home and your future. You need to take the time to figure out the best fit for you, otherwise you risk losing more than just your credit rating.
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