Interest Only Mortgage
Most of us understand what
mortgage interest rates are and how they work, but what many people don't realize is that there are mortgage
programs out there that allow you to only pay interest in order to keep the payment down each
better understand what interest only mortgages are, and why you would want to have one, let's go over them in
An interest only mortgage is very common on
adjustable rate mortgages and on mortgage refinancing options such as a HELOC or second
mortgage. These loans basically have a time period that allows the buyer to pay interest only on the
the pre-determined time of paying interest is over, the loan must be paid in full. Most of the time these periods
can be 10-15 years, but there are some mortgages out there that are as short as 5 years. So why would a person only want
to pay interest on a mortgage instead of putting money towards the principle?
When getting this type of loan on a mortgage refinance, it can
be very beneficial to get this type of loan as it allows you to have access to the equity in your home without
having to pay a huge payment each month to use it. The best situation for this
type of loan is if you need some money for a short amount of time, but plan on paying it back
having this type of loan, you can use the money that you need, pay it off quickly, and not have to pay so much
to the bank as you would a normal mortgage.
While these interest only types of mortgages used to exist as a bad credit
mortgage product several years ago, they primarily exist as second mortgage options.
One of the main reasons for this is that many
people got in over their heads and could not pay back a 1st mortgage when the time came due, which is why these
mortgages are primarily only offered as second mortgage programs. Since second mortgages are
usually always less money than a first mortgage, many people take advantage of these interest only loans when
getting mortgage refinancing, or when needing a second mortgage to pull equity out of
their home to use for different things.
The most common interest only free loan is that of a HELOC, which basically makes
the equity in your home work like a credit card. You only pay interest on the money you have used, and if you
don't use any money at all, you pay nothing.