Interest only mortgage loans provide the home owner the most flexibility in payments possible. With interest only loans for home mortgages, you can pay only interest on your mortgage, or you can pay interest and principal, depending on your finances each month (IMPORTANT: this assumes that there are no pre-payment penalties for your mortgage). Not only do these loans provide flexibility, but they also allow for income growth for young families while paying only interest for a period of time.
You may know that a large portion of the payments during the first years of a mortgage are only interest. As the principal becomes a larger portion of the payment the loan balance reduces quickly (see amortization chart). So why would someone want to consider any type of loans based on interest only for their mortgage?
If you know your income will grow over a period of time, then you might be a candidate for interest only loans for the first years of your mortgage. An example would be a lawyer or several other types of professionals who begin at only a starting income, but will likely experience large increases income over a short number of years. Interest only mortgages for these people’s home mortgage loans would allow them to put off the payments toward principal until their income grows.
Anyone who knows they will have large investments mature, but not soon enough to pay for their housing needs should consider an interest only mortgage for their home loans. Once the investments mature, then large principal payments can be made and the home could even be refinanced into a more conventional loan. This is the kind of flexibility provided by these loans.
The only problem with interest only mortgage loans is the temptation to pay interest only continually, even though you may have money to pay toward principal. This will gain you absolutely no advantage over renting since your entire payment will go to the bank and nothing toward home equity.
The key to interest only mortgage loans is discipline. Even if you pay only a few dollars each month toward the mortgage principal on the loan, it makes a big difference over time. Windfall monies, such as a big bonus or tax refund, should go straight toward principal to lower your loan balance.
If you don’t want to have to move at what may be one of the busiest times of your career, having more house now can be a big benefit, especially if both members of a couple are in careers which will experience income growth quickly. Get the home you want now and never have to move again! Loans that allow payment of interest only on your home mortgage work very well for the disciplined professional. Remember, you can always refinance into another type of mortgage loan later if you want.
Special Mortgage Types
The 40 Year Mortgage
Buy to Let
Adjustable Rate (ARM)
No Cost Mortgages
Ready to Refinance?