Interest Only Mortgages

Interest only mortgages have become more popular over the years. The lower initial monthly payments and the tax breaks for those who itemize their deductions are positive benefits that make this type of mortgage not only affordable, but also, attractive.

In fact, interest only mortgages are the perfect financial vehicles for people who want to buy a home with a large purchase price, but who have variable incomes due  Read More...

Interest Only Mortgages

(Continued) to self-employment, sales commissions, or bonus payments. Individuals who are expecting to come into some money through an inheritance can also benefit from an interest only mortgage as well.

In the early years of interest only mortgages, the monthly payments are smaller. Each month, the homeowner pays the same amount to the lender. In subsequent years, the payments increase to a larger amount. Again, the payments are set at a particular amount. Typically, homeowners have smaller incomes in the beginning of their home ownership, and therefore, they need smaller initial payments. Hopefully, as time goes on, their income increases, and they can afford the larger payments that arise with interest only mortgages.

Smaller monthly payments either leads to the ability to purchase more home than you could readily afford with a traditional mortgage or the availability of disposable monthly income that you can spend on other items. Therefore, if you have variable income and need a lower monthly mortgage payment, considering an interest only mortgage can be a good choice for you

Interest only mortgages actually have two terms. Both terms are determined and set at the acquisition of the mortgage. During the initial term, the monthly payments only go toward the interest charged on the mortgage. None of the payment goes toward the principal.

Once this term has passed, the payments are recalculated for the second term. During this phase, the payments are larger since they now include a portion that goes toward the principal of the mortgage in addition to the portion that goes toward the interest. Homeowners can decide to make payments toward the mortgage principal at any time during the loan as long as the lender has not excluded this option.

As you can see, interest only mortgages offer flexibility, and might be the perfect solution that enables you to purchase a home with an expensive price tag. Plus, you can declare the interest charges on your income tax to get the most out of tax deductions. An interest only mortgage can help you to buy a home, free up some cash, and give you the lifestyle that you want.

Return to Top