Interest Only Mortgage

An interest only mortgage is where one gets a mortgage for a fixed period and only pays the interest and will pay the principal amount after the interest payment period has finished. In this the borrower pays a lesser amount in installments. If one is expecting their income to increase after the interest only period has finished or getting funds from some saving policy which will enable them to repay the principal. For example a person takes an interest only mortgage for 10 years as he has saving bonds or a pension fund which he or she expects to receive after 10 years and with that money they will repay the principal amount. With an interest only loan one is able to buy the house that they want and if they are absolutely sure of getting the funds at the end of the stipulated period then such a mortgage is feasible.

Interest only mortgages became very popular in UK in the 1980’s and 90’s and combining an interest only mortgage with an endowment policy became known as an endowment mortgage. In Canada one can get a pure interest only mortgage or an interest only mortgage that also combines a part of the principal amount in the repayments. Interest only mortgage rates are higher then that of a fixed rate mortgage because the interest is charged for the principal amount over the entire period of the repayment as one is not paying back any part of the principal amount. So if one took an interest free mortgage for 15 years for $ 100,000. At the end of 15 years they would still owe $ 100,000 to the mortgage lender as they have not repaid any part of the principal amount. On a fixed rate mortgage one is paying the interest and also repaying the principal so at the end of the term the borrower does not owe anything to the lender.

Interest only mortgage lets the first time home owner get a home and only pay small installments. However once the interest installments end and one has to pay back the principal and does not have the funds to do so one may have to take a second mortgage which may have very high installments. If one invests in a second house by taking an interest only mortgage hoping to sell the house to repay the principal one has to be absolutely sure that they will be able to do so. Should the property value decline then one can get into serious financial trouble. The difference in taking an interest free mortgage and a fixed rate mortgage may be marginal in terms of the installments that one has to pay. If one were to calculate an interest free mortgage installment for 20 years and a fixed rate mortgage for 30 years the difference in the monthly installment would be a few hundred dollars. One can use an interest only mortgage loan calculator or a interest only mortgage payment calculator which are available on the Internet to calculate the monthly installments and to see if they are really worth it. If one has got some savings that are accumulating and when they mature one will be able to pay back the principal then it would be worthwhile to take an interest free loan.

Interest only home mortgage and interest only home mortgage loans are advertised by mortgage loan brokers and people who find a home that they want to buy but cannot afford to pay the installments on a fixed rate plan and expect their income to increase sufficiently over the years to be able to repay the principal amount later may take an interest only mortgage loans. There are some mortgage brokers who even encourage bad credit interest loan mortgage only for people who have a bad credit rating but want to buy a home giving them an opportunity of purchasing a home and after they have raised their credit scores getting a second mortgage to repay the principal amount.

There are mortgage companies who specialize in interest free mortgages like one can find interest only mortgage brokers in MN, and interest only mortgage California loan. Most mortgage companies that deal in interest only mortgage loans give interest only mortgage 15 year loans. Most interest only mortgage loans are for short term mortgage loans with a maximum period of 20 years.