The interest only mortgage is a non-traditional mortgage. But many homeowners find benefits in it. Primarily, it serves the homeowner who may not intend on living in the home for long term. Interest only mortgages only require interest to be paid per payment, when compared to principal-and-interest mortgages that require both principal and interest to be paid. Thus, interest only mortgages have lower payments since the borrower is only required to pay interest.
As a result, the homeowner may have a lower payment. However, the mortgage balance will not be paid down. So a homeowner in an interest only loan may not ever pay the balance down, unless additional money is paid into the balance with payments
Interest only mortgages are for borrowers who may not intend on living in a home for more than a few years. It may be for those who need a lower payment and/or may have increased income in years to come, and who can pay principal balance down in latter years. This loan program is also for a borrower who is comfortable with the potential of a balloon payment when the term of the interest only mortgage is up; they will either have to pay the loan off entirely, or they will have to refinance into another loan program.
Your payments will always be the same and they will only be the interest portion of an amortization schedule, thereby the balance of the mortgage never decreases. Since interest is only be paid each month, the balance will remain the same. Interest only mortgages generally result in a lower payment but there is also the reality of the balance never going down and the potential for a balloon payment in subsequent years once the term is up
• Your monthly payments will generally be lower.
• You will have funds left each month towards other investments or savings initiatives since you will not be paying the principal portion of the mortgage, thereby allowing surplus savings potentially for an astute homeowner.
• Potentially qualify for higher balance home loan.
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