Interest Only Mortgage: Taking a Closer Look

Gil Mackey
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

There's nothing new about the interest only mortgage, but if you take a closer look at this mortgage product you might find something you like. Like most mortgage loan programs, interest-only loans are not ideal for everyone--but they might be right for you.

Interest Only Mortgage Details

This loan was originally marketed to the jumbo mortgage market--high-dollar loans--and so was designed for more investment-savvy homebuyers. For many of today's homebuyers it is a mortgage tool that can get you into more home than you could otherwise afford. Here are some details:

  • Interest only payments don't last forever; you have the option of making interest-only payments for a specific time, for example 5 or 10 years, then the entire balance of the loan is amortized over the remaining period of the loan.
  • Eventually you will have to pay the balance. The payments will increase to cover the extra principle reduction needed to pay the loan off in time.
  • Interest only loans can save you money if you want to skip that starter home and go directly to the next level. You can buy more home now, saving the costs of selling the first house, moving, and then buying the bigger one later. However, this only makes sense if you know that your future earnings will support the bigger payment on the larger house.

Relying on escalating prices and refinancing opportunities to pay the mortgage backfired for many borrowers. If you plan to have your home for some time, but don't see your income increasing or your expenses decreasing, think about a cheaper house and a safer loan.

About the Author
Gil Mackey has been a writer and artist for the past twenty years. In addition to freelance writing, he writes for his local paper, and lives with his two children in Nevada.

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