Interest Only Mortgage is another financial option that lets the borrower pat the interest on the loan through their monthly payment for the mortgage length. The payment that they do for their mortgage is fixed and only goes toward the loan’s interest. Homebuyers can choose the term length for up to 7 years. Most people who choose interest loan mortgages usually refinance their homes or make a lump sum payment. Some even begin paying off the principal balance of their loan. However, since they only covered the interest rate of their loan, the monthly payments will increase.
Most people do consider interest only mortgages when they want to get another house right away, know that they will soon be selling their house within a short period of time or if they want the first payment to be significantly lower to give them more time to save up some money for a larger payment in the future.
Because this type of loan only covers the interest rate of the mortgage, the monthly payments are significantly low during the term, they can even borrow a much larger home after they’ve finished off the loan. Homebuyers can also put the extra money on other investments to build their net worth. Also, the monthly payments are qualified as tax deductible during the entire mortgage term.
However, since the interest are mostly based on the housing market, mortgage rates can increase if it’s an Adjustable Rate Mortgage. Some people tend to spend their money on something less important because of its low monthly payments. Most people cannot really afford to make principal payments when the time comes that they have to pay for it. The house’s market value will also not appreciate as quick as the homeowners hope it to be.
Getting an interest only mortgage increases the risk of paying a much higher monthly payment when the time comes that they’re done with the mortgage. This would result in a payment shock, and might not be able to come up with the required monthly payments. The home may also not be worth as much as what is left on the mortgage since housing prices have a tendency to depreciate. It’s also hard to know what the interest rates are going to be in the next couple of years. According to some brokers in Auburn, refinancing will no longer be an option if the loan balance is significantly higher than the house’s market value.
However, there are still other alternatives to getting low mortgage payments. Homeowners can ask lenders in states like Alabama if they qualify for community housings. It would also be much advisable to look around some other lenders who might be offering some features and terms that can fit your budget.<< Back to the list.
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