Mortgage Advisors

mortgage advice

Interest-only Mortgage

With an interest-only mortgage, there is a period of time in which the monthly mortgage payment consists of interest only. This period of time usually last five to ten years, during which the balance of the loan does not change. During this time, borrowers can pay more than just interest, if they desire. In most cases, the payment due the following month will be decreased.

Interest-only mortgages can work well for certain borrowers. For example, if you do not have a steady income, you may be more comfortable with a lower monthly mortgage payment. You will have the option to pay more when you can, but should ask yourself whether you will have the discipline to pay against your principal balance when you are not required to do so. Another borrower for whom an interest-only mortgage may be appropriate is an individual, or family, moving from a modest home to a more expensive one. The burden of moving expenses can be more manageable when you have lower monthly mortgage payments.

Interest-only mortgages are useful for those who plan to save or invest the money saved during the period of lower monthly payments. If you think you will spend the money during this time, and leave the principal balance unchanged, the interest-only option might not be appropriate.

Interest-only loans can often charge a higher interest rate than other loans because they are considered more of a risk.