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Traditional mortgages offer stable interest rates and thus a borrower has predictable payments over the life of the loan. Take a look at how interest only mortgage loans differ from traditional mortgage loans. Find out whom they are more suitable for.
Interest only mortgage loan
In an interest only mortgage loan, you pay only the interest on the mortgage in monthly payments for a fixed term. After the end of that term, which is usually about 5-7 years, you either pay the balance in a lump sum or start paying off the principal. Though interest only mortgages sound good, it is not a viable option for everyone.
Financial advisors do not recommend interest only mortgages to regular wage earners as the payment jumps skyward after the interest only period. Interest only mortgages benefit those borrowers who invest the money they would have paid as equity. In fact, they would gain a lot if the investment returns exceed the rate of home appreciation. The down side is that, lots of people promise themselves that they will invest the difference amount accrued between interest only mortgage and amortizing loans, but not all of them follow through.
Basically, interest only mortgage are best suited for younger borrowers who have a future of increased earnings ahead of them and who really want to maximize their buying power now. This sort of interest only mortgage loan is ideal for those who are likely to get commissions and high bonus. This works best when the person can save the savings that he gets on an interest only mortgage loan so as to make more money. It is not suitable for regular wage earners. Those who are in business and seeking to maximize their cash flow are likely to opt for this sort of interest only mortgage loan.