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Should You Get an Interest-only Home Mortgage?
Before you consider taking out an interest-only mortgage, you
should first understand what they are. Unlike traditional,
fixed-rate mortgages, interest-only mortgages allows the borrower
to initially pay the interest on the principal for a short period
of time, rather than making payments on both the principal and
the interest. This is how it works: say, for example, you've
taken out a mortgage for $100,00.00, which would require a
monthly payment of around $1,000.00. However, with an
interest-only mortgage, the same payment would only amount to
around $695.00. You could use the extra money to pay existing
debts, like credit cards or student loans, or perhaps invest
it.
The concept of an interest-only home loan is not a new one. A
descendant of the jumbo market, these types of mortgages were
initially geared towards those who intended to utilise the excess
cash for other types of investments. This is an ideal option for
the market-savvy investor, as it frees up some income for other
projects. However, this type of mortgage has now entered the
mainstream market, and is available to most home buyers.
There are many benefits associated with taking out
interest-only loans. They allow younger buyers to take advantage
of a developing real-estate market, giving them the opportunity
to afford a slightly higher priced home.
Before taking out an interest-only mortgage, there are few
things that you must take into consideration. While the thought
of only having to pay for interest for the next few years may
seem very tempting, you must remember that when the interest-free
grace period is over, you will have higher payments than you
would have with a traditional mortgage. Many young couples do not
account for this, assuming that they will be earning more money
in the future, not anticipating that they may face financial
hardships down the road, thus putting their home at risk.
While there are many advantages to taking out an interest-free
mortgage, it is important to remember that the grace period will
not last forever and that the monthly payments will eventually go
up. As long as you make financial plans for the future, taking
advantage of an interest-only mortgage could allow you to
increase your financial well-being, bringing you peace of
mind.
Mark Lambie is the founder of The Loan House a website that
allows consumers to quickly and easily get online mortgage quotes and
mortgage information.
MORE RESOURCES updated Tue. June / 06 / 2023
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