What is an interest only mortgage ? Page 2

What Are The Rewards?
There are some really great rewards to an interest only loan. Because you only are paying the

Hot Topics

Is the price I get quoted for life insurance the price I get charged?: We are afraid the answer is “it depends” upon many factors.
What are the most common optional extras available on life insurance policies?: When considering the purchase of a life insurance policy you are almost certainly going to be offered additional extras that maybe added to the plan. The following three are the most common: -
What is Critical illness Insurance?: Critical Illness Insurance pays an lump sum if you are diagnosed with a serious illness or critical illness.
Complaints about a Life Insurance Adviser: If the Life Insurance Adviser is regulated by the Financial Services Authority then he will have provided you with his Terms and Conditions at the very first opportunity.

interest and none of the principle, the amount of your monthly payment decreases. On an average size of, lets say $200,000, it will save you around $175-$200 per month in payments. For someone on a tight budget, that is a big difference. On a $1 million dollar loan the savings will approach $1,000 per month. The downside to it is that after the first 5 years (or whatever the term is that you have worked out for the interest only part) your payments will jump up and be higher than they constant payments on a fixed rate loan. It is definitely a nice way to get into something that you cannot afford now but are sure you will be able to afford later. It is also nice for someone who is interested in buying a house and reselling it in a few years for a profit as the money paid into it, the all around total investment, will be less.

What Are The Long Term Implications?

Speaking of the long term is where the interest only loan begins to get scary. Imagine that you take an interest only loan for $100,000 and begin making payments. Because you are paying only the interest the payment would drop from the average fixed rate payment of around $600 per month to $500 or so for the interest only loan. You continue in this ( life insurance quotes ) manner for five years and then the remaining balance is converted into a fixed rate loan. You still have an outstanding balance of $100,000 but now you only have 25 years to pay it off instead of 30. In the end you will wind up paying $8000 to $10,000 more over a 30-year period. If, however, you do not plan on actually staying in that house for 30 years, the long term implications is not that important.

Conclusion
As I see it, if you are trying to get a house that you want to stay in until you are old enough to leave it to your grandchildren, perhaps the interest only mortgage is not the best option for you. It would be better in the long run to go with something else, something that will not cost so much in interest. But, if you are young, nomadic, or on your way up the corporate ladder, this is definitely something to consider. This type of mortgage will allow ( life insurance ) you to get into a pricier house, have a little extra money for upgrades, and then sell it in a few years for a large profit when that job promotion forces you to move to another city. It is a great way to save money in the beginning but can be a real gamble if you stick it out for the long haul. And, as always, sit down with a trained professional who knows your situation, your needs, and your desires. They will be the best assets you have when it comes to your assets!