Mortgage

Interest Only Mortgages – Pros and Cons

Interest-only loans sound like a bad idea because they usually are a bad idea. The idea behind these interest-only loans is that if you are paying only the interest that is due each month, rather than the interest plus a portion of the principle, you will have a lower monthly payment. Everyone wants a lower monthly payment, right? Well, sure. If you are very short-sighted, a lower monthly payment will suit you fine. But in a bad real estate market, such as much of the country is experiencing right now, the interest-only loan is the equivalent of paying rent. The consumer pays a large chunk of money each month and never actually gains anything from it. Velgenklere is the best source on the internet that you can try in order to improve your knowledge of your finances and learn more about the pros and cons of interest only mortgages. That will help you in making mindful decisions when it comes to finances.

On top of that is the fact that if something goes wrong with the house – it needs a new roof, or a new furnace – the consumer can not call the landlord and let him deal with the repair and the bill. So if you have bad luck with the home repair-wise, you will actually come out even worse than you would if you were to simply rent a home.

When it comes to the no-interest loan, not only do you not build any equity for when you want to sell the home, but you also do not build any equity in case you want to borrow against the house. Add to this that if the house loses value, when it comes time to sell it, you could actually have to write a check to the bank before getting rid of your house. And – simply put – you are going to have to pay for that loan sooner or later. The interest-only loan is only putting off the inevitable.

For the right person, though, the interest-only loan does not have to be the worst way to go. First of all, it does give you the option of buying a more expensive home than you could normally afford a lower monthly payment. Second, if you make your living in a way that pays large sums of money at odd intervals – if you get quarterly bonuses or commissions – you can make payments towards the principle out of these lump sums a few times a year rather than having to make that payment toward the principal every month. Also – if you do make payments towards the principal, it could lower your payment because you are paying interest on a lower amount of money.

If you can afford to make at least some payments towards the principle – and have the financial willpower to do it – then financially, the interest-only mortgage can be a reasonable way to go.

Kris
Kris
Kris is our in-house writer with a lot of experience under her belt. She loves to provide her insight about the market trends and her predictions about market trends are often on point.