Suitability of the Option

A number of factors decide your ability to repay the amount borrowed. The nature of your business or profession, the amount of income earned the timing of earning, seasonal or steady earning. The mortgage loans offered have a number of repayment options to choose from depending upon the convenience of the borrower.
If you think you cannot afford a regular amount towards the repayment of principal and interest then interest only mortgage is most suitable option.

Borrowers who intend to pay back the principal amount whenever it is convenient, individuals who intend to initially buy a starter house and later move to expensive house, who intend to invest the cash flow for a higher rate of interest than their mortgage rate, those who wish to make quick capital gains on the property purchased are normally the ones who opt for an interest only mortgage option. If you are one among them proceed choosing the interest only mortgage scheme.

Interest only mortgage rate

Having decided to choose this option it is important that you know how the scheme actually works. As the name suggests, the amount repaid by the borrower is only the interest portion. In other words, the borrower commits to pay only the interest portion of the loan say for a period of 5 to 10 years before he could actually start repaying the principal amount. The loan amount remains unchanged with the passage of years.

Deceptions about Interest only Mortgage

Where you told about the following when you said you are willing to choose an interest only mortgage? Think again, read the explanation and find out the truth

• Interest only mortgage comes with a lower rate of interest – The fact is that most of the interest only loans are Adjustable Rate Mortgage (ARM) loans. Any day adjustable mortgage loans carry lower rate of interest in comparison with fixed mortgage, atleast initially.
• No mortgage insurance for interest only loan – Lender insures the mortgage payments and the borrower pays the premium by way of interest payments.
• The quoted interest rate is fixed for the interest only period in case of interest only ARM – It may or may not happen. Adjustable rates remain the same for as long as 10 years or as short as one month.
• It is easier to amortize interest only loans – This statement is false. It is amortized as any other loan.

Friends, hope I was clear enough in explaining you mortgage jargon, however for any doubt please revert back or write to me so I can explain you further.