An Interest Only Mortgage Rate Should Be Considered Carefully

An interest only mortgage rate is usually not set; when you decide to apply for an interest only mortgage, be aware that adjustable interest rates frequently apply. This could mean that your payment will be slightly different from one month to the next.

Also, when you are considering this type of loan, shop around so that you can get the lowest possible rate. Not all lenders offer the same interest rates, so do some research before you sign on the dotted line.

Interest only mortgages – the pros

People choose to go this route for many reasons. For some, they may have a lower income level at the present but know that their income will increase over the next several years. An example of this would be when an individual needs to attend school for their career. Someone training to become a nurse knows that their income will increase over the next 4 to 5 years, but they need a lower mortgage payment at the present time.

Other choose this type of loan in order to buy a larger home. While you may not be able to currently afford a large home, you may be able to with this type of loan. Many people do this when they expect their incomes to increase over the next few years; at that point, they already have a larger home and can hopefully now afford the payments when the interest only mortgage term ends.

The downside of interest only mortgages

When it comes to this type of loan, it cannot be guaranteed that your interest only mortgage rate will be one that is a fixed rate. Some lenders offer one rate for the initial period after you obtain the loan, then the rate increases substantially for the remainder of the loan term. Most use interest only mortgage rates that are adjustable rate. However you decide to go, be aware that you may face a devastating shock if your interest rate rises substantially during the first few years.

Another “con” to an interest only mortgage is that you will not be paying a cent on the principal. This means that if you are on an interest-only payment period for 10 to 15 years, you will owe the whole amount that you borrowed originally at the end of that term. Additionally, once the interest-only period ends, you can expect your monthly payments to increase once you begin paying toward the principal on your loan.

Be aware that companies compete when it comes to an interest only mortgage rate. The lower rate you can get, the lower your monthly mortgage payments will be.