|
Interest Only Loan - No Principal Mortgage Payments
An Interest Only Loan is a very high caution, risky mortgage to get. I explain below how an interest only loan works and how different it is from other types of mortgages. Try using the mortgage calculator to figure out difference from an ARM rate mortgage to a fixed rate mortgage. Sometimes it's only minimal so getting the fixed rate is the obvious choice. If you're just looking to buy your first home, or even if it's your tenth, but you just buying to live there then the interest only loan is NOT for you. It's for someone who is garrenteed to either sell it in five years or be getting a big promotion by then because it will most likely be a large jump in payment. Especially if the interest rates went up!
I'm sure you've heard it more than once, but I have to point most people toward the fixed rate mortgage. It's the most basic and you don't need to think about it after you get it for the next 30 years. If you think interest rates are going to go down in the future then you should try getting an adjustable rate mortgage because your interest rate will fluctuate along with the bank rates. Then comes the mysterious interest only loan. If you look at and understand an amortization schedule then you'll see the amount of interest you pay in each payment and also the amount of principal you pay. The princial payment is the amount that lowers what you owe the bank. Without it you're not paying the bank back at all, so what's the point of having it? One reason, you're a handy man and you're fixing it up and reselling it. It lowers your borrowing power with the bank so that you can afford more of a house to fix up; more profit. The handy man doesn't care about paying down the principal, because he needs all the cash he can get to fix up the house.
I'm sure some people have other reasons for getting an interest only loan, and if that type of mortgage will benifit them then I say go for it. That means they thought about it, researched it and came up with the best mortgage for their situation. That's what I'm stressing for you to do because it will save you money! | 
