Interest Only Mortgage
INTEREST ONLY MORTGAGE
If you were given the chance to purchase a home under the interest only mortgage… would you take it? Everybody dreams of owning a home. If you own a home, you will not be faced with monthly rents. You will be able to make the necessary improvements you’ve dreamed of- improvements that are otherwise not possible if the house is rented.
Unfortunately, the dream of owning a home remains a dream to most people. Even with the best deals and financial assistance, purchasing a home is still beyond the reach of an ordinary employee with a fixed salary. This is so until the interest only became popular. As the name suggest, interest only mortgages requires the borrower to pay only the interest portion of the payment for a period of time. Payment for the principal or loan balance will be at a later date and when it is convenient to the borrower. This kind of was widely used by wealthy people in the past. These rich people have the capacity to pay the higher monthly payments.
An Interest only is a good option for those individuals with fluctuating income and for people who are expecting additional or increased income. Due to its lower initial payments, borrowers could qualify for bigger loan amounts. A business person could use the cash to finance high yielding investments. This is not possible if he/sheis saddled with high monthly payments. He/She has to make sure though that the investment return could cover the interest rate of the loan. A first time home buyer who plans to upgrade their home will be benefited by this kind of too. An interest only can work for you if you plan to resell your home during the interest only term of the loan.
The interest only has become so popular these days because many dishonest, fast talking lenders deceive borrowers by letting them think that they
have the opportunity to make big savings because of the low initial payments. Because of low monthly payments, borrowers are misled into thinking that the interest rate on loans without the interest only option are higher. This is not so. An interest only carries higher risks thus the imposition of higher interest rates. Because of the high risk of an interest only mortgage, the borrower should be prepared to shell out more money if insurance is required.
But what if the expected raise in income did not materialize; what if the home is not sold for a profit? What if you can not pay the principal balance when it becomes due? Monthly payment is bound to be higher because only the interest was paid at the start of the loan. Borrowers who were led to believe that they can afford to purchase a home by obtaining an interest only should be prepared to face the consequences of damaged credit standing and most importantly the loss of the home.
A borrower should make careful considerations before taking an interest only mortgage. Weighing the benefits and the risks would be wise. And as a precaution, a borrower may seek the help of financial advisors who can offer invaluable assistance with regards to choosing the right mortgage. The bottom line is for the borrower to reach his goal… the goal of owning a home.
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