- Instead of paying a monthly principal, you pay the only the interest for the first 5 to 10 years of the loan term. This leaves you with extra money for investment or savings. Once the loan term is up, you are expected to have the funds to refinance or pay off the mortgage in one complete payment.
- Interest-only mortgages benefits professional investors who have confidence that they will make money by investing the principal payments on a regular, fixed, 30-year mortgage.
- One advantage is lower monthly payment because you can get a more expensive home with a lower payment each month.
- Other advantages of an interest-only mortgage are that you have extra money that you can place in an investment or savings account, you have smaller monthly obligations to maintain and you can set up your own schedule for custom amortization.
- The major disadvantage to an interest-only mortgage is the risk that your mortgage rate will increase.
- Your anticipation of income growth and home appreciation can often fall short. Also, many people often spend the extra money instead of investing or saving it. Some individuals lack the discipline to pay the extra money on principal payments when it isn't necessary.
- For first time home buyers, this is a good way to get an affordable monthly payment. For investors or homeowners, this is an excellent way to get into a home that would otherwise be unaffordable.
