Interest Only Mortgages
Taking out an interest only home mortgage can be a financial risk. However, it can also be a simple way of getting a foot on the property ladder. This type of mortgage is similar in length to a standard mortgage, 30 or 40 year terms for example, but during the initial 5-10 years you only pay the interest on the loan and not the loan itself.
A typical interest only mortgage loan would comprise of the following phases:
- An initial 5 or 10 years where you pay the mortgage interest only. This means that the principal amount borrowed doesn’t decrease in any way.
- The remainder of the mortgage term during which you pay both interest on the principal sum and a percentage of the principal as well. This dual payment continues until the end of the mortgage term or until you refinance.
The outcome of this is that for the initial interest only period you pay a lower monthly payment than you would with a standard mortgage. Then, when the interest only period ends your monthly payment increases to accommodate the principal payment as well.
The main benefit of an interest only mortgage loan is that it provides people on low incomes with the opportunity to purchase their home. The payments in the first ten years are normally very manageable and there are numerous interest only mortgage lenders willing to approve this type of mortgage.
Similarly an interest only commercial mortgage can help new business owners to purchase premises to trade from, safe in the knowledge that they only need to pay the interest on the principal for the first few years.
Because this particular type of mortgage poses a higher risk to lenders, the typical interest only mortgage rate is often slightly higher than that of a standard mortgage. By using a mortgage interest only calculator, mortgage payments can easily be worked out – both in the interest only period and during the rest of the mortgage term. This tool gives you the chance to see how your payments will increase at the end of the interest only period.
Whether you want to find your first mortgage or are looking to refinance, interest only mortgage packages are worth considering. Paying only the interest for a set number of years provides you with a bit more flexibility in your budget and it may mean you can afford a slightly more expensive house than you thought.