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Interest Only Loans

Interest Only Mortgage Loans – The Basic Facts

You might have heard a host of people talking about interest only mortgage loans. However, very few people have a very clear idea of these interest only loans. Monthly flexibility offered by these loans is the biggest reason why people choose an interest only house loan. It enables them to deal with unexpected expenses, finance home improvement and even pay off their high interest debts.

The Concept of Interest Only Mortgage Loans

The basic idea of this loan is that it offers borrowers an option to pay only interest. You can make as much payments on your principal as you want in any given month during the initial period that succeeds closing.

Most mortgage companies offer prospective borrowers with various interest only house loans that include- year fixed rate mortgages, adjustable rate mortgage, amongst others.

The Appeal of Interest Only Mortgage

One of the most appealing features is that the interest only home loans allow you to control the monthly payments and thus your monthly cash flow will be in your control during the designated interest-only period.

More importantly, you save money, as your monthly mortgage payment will be much lower than it would be if your payments include the principal, as well as, the interest. Realize that the interest rates offered to you in regards to interest only mortgage might be lower than the prevailing market rates or they might even be higher. However, the flexible payments are the ones making the interest only loan so attractive.

What Makes Interest Only Home Mortgage Loan a Better Option?

The bottom line is that these loans make financial sense. If you go for the traditional 30-year fixed rate mortgage under interest only loan, then in the first six or seven years of your monthly repayments, almost 70% of the payment goes in the interest on the loans. Imagine your savings, if you have a low interest rate on the same.

The savings that you make can then be invested into something that will offer even a higher rate of return. The amount of money you have access to depend on your loan amount, and this money can then be invested or can be used to reduce your high interest debt.

Who can benefit from the Interest Only Loans?

The interest only home loan is a great option for all those who expect to live in their homes for a little less than ten years. As aforementioned, you only have to pay an interest for the early years; therefore, homeowners can utilize the money saved for other important purposes like paying for college, buying a car, or making home improvements.

At the end of the day, you must be clear of the various misconceptions in relation to the loan; one of which is that if you only pay the interest, there is no equity build-up in the home. Nothing can be farther than the truth. Therefore, do your homework thoroughly and understand everything about interest only mortgage loan before you go for it.

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