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April 10, 2009, Newsletter Issue #162: Choosing an Interest Only Mortgage Option
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Tip of the Week
There are so many types of mortgage programs available to home buyers that it can get difficult to keep them all separate. One of the latest types of programs that many people are taking advantage of is the Interest Only Mortgage option. An interest only mortgage is just as it sounds, you are only required to pay for the interest that is constantly accruing on your loan. As opposed to a typical mortgage you make both interest and principal payments.
The lower payment that you will see when only needing to pay the interest on your loan is great, but there are a few tradeoffs. First, as was previously stated, you are only making interest payments. This means that your monthly payments will not build actual home equity. People who use interest only mortgage options typically have the option to make extra payments each month which will go towards their principal balance, however, most find that they never do. If you are thinking of taking on an interest only mortgage loan, mandate that you make extra payments every month or two.
If you want to really build equity in your home, this is a must. Many brokers will offer discounted rates for an interest only mortgage loan. Be sure to check with the broker you are working with to find out what they can offer you. Interest only mortgage loans only remain interest only for a set number of years. So, don't forget that when that time runs out, you will start making interest and principal payments. Only now you have far less time in which to pay off the same amount that you started with.
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