Paton Jackson

Interest only mortgage pros and cons

Interest-only mortgage is not newly introduced; it is similar to other home loans. However, in case of other home loans, you pay monthly installment but here you pay only the interest for a period of five to ten years, often for the whole term.

With interest only mortgages investors or homeowners can take real advantages of affordable and cheap mortgage options. While paying only interest, he or she can invest the principal amount in savings, in stocks or in business. But after 10 years, the mortgage loan holder will have to pay principal amount of mortgage loan.

Pros of interest only mortgage:

1) This mortgage is beneficial if you are a regular and practiced investor. If you are sure that investing this money into stock or in any small business will give you a good return in the future and you will be able to repay the principal amount in decided term; then go for it.

2) Interest only mortgage will be a blessing for you if you get income from it in the form of commission or bonuses. You can easily pay your monthly interest with your salary and make money with principal amount by investing it in stock market, futures trading or small business.

3) Because of low initial payment you can apply for a larger loan to make your dreams come true.

4) If your financial condition is crucial and credit history is negative then low interest mortgage rates gives you a chance to improve your credit history.

Cons of interest only mortgage:

1) If it is an adjustable rate mortgage (ART), therefore there is a risk of increase in the interest rate.

2) A fall in expected income growth can cause problem in paying your monthly interest.

3) If you are not disciplined in spending money then this mortgage is not for you.

4) Decline in property value will fetch you towards financial problem.

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