Interest Only Mortgage

An Interest Only Mortgage requires that only the interest portion of the payment be submitted, this means that the principle balance remains the same. An interest only mortgage loan offers you greater purchasing, reduced qualifying income, maximizes your cash flow, and also offers a significant monthly payment reduction compared to a conventional mortgage.

With an interest only mortgage you are paying the lowest possible interest rate on your mortgage loan at the current time. You can actually build equity faster with an interest only loan with direct principal reduction. Any amount you pay each month that exceeds your interest only payment will apply toward principal.

Types Of Interest Only Mortgages: A popular interest only mortgage is a Libor (London Interbank Offered Rate) Mortgage Loan. Some common interest only mortgage loans are:

One Month Libor Loans
Three Month Libor Loans
Six Month Libor Loans
One Year Libor Loans
3 Year Interest Only ARM
5 Year Interest Only ARM
7 Year Interest Only ARM
10 Year Interest Only ARM

Advantages: The lower monthly mortgage payments let you purchase a home where a fixed mortgage loan would not. You get to jump on the housing bandwagon. Instead of using the cash to pay down your mortgage principal, you can invest in other vehicles such as stocks and mutual funds to generate a superior return.

Disadvantages: There are no assurances that your income will rise fast enough to cover the higher monthly mortgage payments. Instead of the property rising fast enough to pay off your interest only home mortgage, it could stay at current levels or even drop. As a result, you might require another loan just settle the interest only mortgage loans. There is no guarantee of getting superior returns in other investments. If you used the money to generate returns in investments such as equities and mutual funds, there is no guarantee you will make money.