An interest-only mortgage allows you to make payments of only the monthly interest amount for a specified period of time. This will lower your payments because it doesn’t include the principal of your loan. The principal amount of your mortgage will remain the same until after the interest-only period has expired.
How will an interest-only mortgage help me?
An interest-only loan gives you the ability to make payments on your home and avoid foreclosure. You also will have a lower, more manageable payment.
What are the drawbacks to an interest-only loan?
- An interest-only mortgage may have a higher interest rate than a traditional loan in which the payments consist of both principal and interest.
- You must pay the monthly principal and interest mortgage amount once your interest-only term expires
- An interest-only loan is a short-term solution to what may be a long-term problem.
- Review the repayment terms of your mortgage carefully. If you are early on in your repayment period, most of your payment will be interest. Therefore, you will not see a significant drop in your payment amount with an interest-only mortgage.
Is an interest-only mortgage an adjustable rate or a fixed rate loan?
Most interest-only loans apply to adjustable rate mortgages, but they can apply to a fixed rate mortgage as well. If the interest-only loan is for an adjustable rate mortgage, the interest rate is not fixed and your monthly payment may fluctuate.