What is an interest only mortgage ?
Buying a home, like any other big purchase, ought to be done only after one has taken all
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measures to ensure that they are educated, informed, and prepared. There is nothing more gut wrenching and heart breaking, not to mention just downright depressing, than committing yourself to a six-figure debt only to find out that you didn't actually pick the best kind of debt for yourself. Now, I know that some of you, like me, were taught that debt was a bad thing. Well, that is half true. There are too kinds of debt, responsible and irresponsible. Irresponsible debt will be a topic for a future article but I think it, well, responsible, to talk about responsible debt as it pertains to the purchase of a house. The house purchase is generally considered an all around good idea. The debt is usually considered responsible across the board. There are, however, varying degrees of responsible debt even within the boundaries of the house purchase. Having said that, I would like to take a look at what an interest only mortgage is, whom it is designed for, what the rewards are, and what the long-term implications are.
An interest only mortgage is almost exactly what it sounds like. There is indeed a principle amount that goes along with it and you will indeed be held responsible for the reimbursement of that principle loan. As the layman would say, if you borrow $100 and you only pay the ( life insurance quotes ) interest for a while, you still eventually have to pay the $100 back. What an interest only mortgage does is allow you to, for a certain period of time, only pay towards the interest of the your loan. It doesn't cut down the principle at all, at least not until the designated period is up (usually 5 years).
Who is the Interest Only Mortgage Designed For?
The interest only mortgage is designed for the homebuyer that is on a tight budget, or the homebuyer that wants to buy something that is out of their price range. I suppose that in both situations the homebuyer cannot afford the house but in one case they don't earn enough to buy anything and in the other, they just want to be able to live outside of their means. But, nonetheless, the interest only mortgage is for both of them. This loan is also ( life insurance ) designed for people who are fairly certain that their income will be increasing within the next few years because, unlike a fixed rate loan, the payments on an interest only loan do rise.