Interest Only Mortgage Financing Info

Initially, interest-only mortgages were offered to well-to-do investors who wanted to use the principal of their payment for other investments. For example, an investor might be able to put that money in the stock market and earn a return rate much higher than would be expected for a real estate investment. While there are risks involved in such financing, big-ticket investors generally had the assets necessary to handle the risks.

Interest-Only Mortgages: Are they Hope or are they Hype?

For the most part, interest-only payment schedules are offered on adjustable rate mortgages rather than fixed rate mortgages, although they are possible with mortgages with a fixed rate. Also, interest-only mortgages are now available to nearly all borrowers. For instance, Fannie Mae offers a fixed rate mortgage with interest-only payments. The program, known as InterestFirst, is known for its back-to-back 15-year terms. However, the rate you'll pay for such a product is higher than the rate for a typical loan.

It is important to note that interest-only payment periods do not last for an entire loan, even if they are based on a fixed-rate mortgage. The interest-only payments last for a certain period of time; after that, your payment will include both principal and interest. For most borrowers, this means that they will be able to borrow more money without increasing their monthly payment. This technique can be particularly important in a climate where house prices are skyrocketing. In order to be able to afford higher-priced homes, interest-only loans may be a borrower's sole option.

However, by taking out such a loan, you're taking a risk. You're betting that your income will increase in the foreseeable future, and your home will go up in value as well. Because you're not paying anything toward your principal, you are not building equity in your house. If the real estate market hits a downturn, such a gamble could prove to be a losing proposition. Therefore, you will need to think long and hard about your finances in order to determine whether an interest-only mortgage is right for you.

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