Mortgage 101: How Interest-Only Mortgages Work and Why They're A Good Solution for Some Buyers

In case you want to borrow funds to purchase a home, it is important to opt for the apt mortgage product. This article will look at the way in which interest-only mortgages work and why they function as the ideal alternatives for a few home buyers.

How Interest-Only Mortgages Differ From Conventional Ones

It is evident from the name that interest-only mortgages are loans, wherein you are merely required to pay off the interest portion of the loan every month for a particular term. These loan lengths’ can go on for ten years, while five or seven is especially common. After this period ends, you will have adequate alternatives. A few opt to refinance their mortgage into a new term and many others choose to make a lump-sum payment for the payment of the balance. Most importantly, during the interest-only period, principal is not paid off until a little extra is paid. 

The Pros And Cons Of Interest-Only Mortgages

Interest-only mortgages are a very common choice since they come with several advantages. Needless to say, your monthly payments will be lesser during the interest-only period as you won’t be dealing with the principal of the loan. With a lower monthly payment, you will be left with enough money that can be used for other purposes, including investing. Moreover, your overall monthly payment during the interest-only period has to be tax deductible, which could contribute to a refund each year.

Do remember that interest-only mortgages come with a few cons too. For instance, in case your mortgage interest rate can be adjusted, you may pay more in interest, in comparison to a scenario wherein you had locked in. You must focus on financial discipline. After the end of the interest-only period, you may witness a substantial increase in your monthly payment for covering both interest and principal.

Who Should Consider An Interest-Only Mortgage?

Interest-only mortgages work well for those individuals or families who know that their income will witness a substantial increase in five or ten years. On the other hand, in case your income is sporadic, then you would seek the alternative of paying lower payments in a few months and more substantial payments in others. Essentially, these mortgages offer flexibility that is not offered by other mortgage products. 

Clearly, in some cases, interest-only mortgages work very well. If you want to learn more regarding how an interest-only mortgage could be right for you, get in touch with our professional mortgage team today and we will help you find perfect mortgage financing for your needs. Get in touch with me today at 1-877-824-2747 or email me at info@charissarealty.ca.