Interest-only mortgages
With the real estate market continuing to soar and the prices of homes escalating each day, many are taking out interest-only mortgages just to afford a house.
How do they work?
For the first few years (usually around 5 or 7) of the mortgage you pay only interest. This can significantly lower your payments and allow you to buy more house than you could otherwise afford. The downside is that you will not be paying off any of the principal, so after the first few years your monthly obligation can skyrocket.
It is a good option for people who know they will not stay in the home more than a few years since they can sell it for a profit before the mortgage payment increases. The are able to save money without ever paying off any principal.
Interest only mortgages are not without risk though. If the housing market were to fall (it could happen you know) or even stay stagnant, you would have no equity in your home when the payments increase. You would not be able to make a profit on the home when you sold it and may not even break even.
Also, what if you decide not to move? Unless your income has increased significantly you'll never be able to afford the higher mortgage. You could be forced to sell your home at a disadvantageous time.
Like most things, interest-only mortgages are great for some people and terrible for others. You can use them to save tens of thousands of dollars. But if you miscalculate or the real estate market nosedives, you could be financially ruined.
Learn more about saving money.
How do they work?
For the first few years (usually around 5 or 7) of the mortgage you pay only interest. This can significantly lower your payments and allow you to buy more house than you could otherwise afford. The downside is that you will not be paying off any of the principal, so after the first few years your monthly obligation can skyrocket.
It is a good option for people who know they will not stay in the home more than a few years since they can sell it for a profit before the mortgage payment increases. The are able to save money without ever paying off any principal.
Interest only mortgages are not without risk though. If the housing market were to fall (it could happen you know) or even stay stagnant, you would have no equity in your home when the payments increase. You would not be able to make a profit on the home when you sold it and may not even break even.
Also, what if you decide not to move? Unless your income has increased significantly you'll never be able to afford the higher mortgage. You could be forced to sell your home at a disadvantageous time.
Like most things, interest-only mortgages are great for some people and terrible for others. You can use them to save tens of thousands of dollars. But if you miscalculate or the real estate market nosedives, you could be financially ruined.
Learn more about saving money.
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