An
Interest Only Mortgage is unique to other
mortgages because for the initial portion
of their term, borrowers only pay the
interest payments on their loan. For the
latter portion of the loan, the borrower
pays interest, plus the principal. The
length of the initial and overall terms
for the loan vary according to lender
and borrower. This loan is often used
by higher income borrowers that can afford
to compensate for this loan’s potentially
erratic behavior.
Common
Questions:
Advantages and Disadvantages of the Interest
Only Mortgage
•
The main advantage of the Interest Only
Mortgage is that the initial "interest
only" portion of the loan offers
borrowers very low payments. This leaves
the borrowers with more money to use for
other purposes.
•
A significant disadvantage of the loan
is that you will not build equity until
you start paying money on your principal.
For more information the Interest Only
Loan and Equity, see our Interest Only
and Equity article.
•
Another disadvantage to the Interest Only
Mortgage is that your monthly payments
will significantly increase once you start
paying principal in addition to your interest
(AKA, the second portion of your term).
At this point, many people refinance to
a different type of mortgage for a lower
interest rate, or sell their home.
