In most cases, monthly mortgage payments involve two parts: principal and interest. The principal comes from the overall sum that a person borrows. Interest comes from the additional percentage that a lender charges for the privilege of borrowing money. As the borrower pays back the principal each month, they also pay interest.
Unsurprisingly, these standard payments can be substantial. If a homebuyer is having financial difficulty, or if they don’t quite have the regular income to pay a standard loan, then they cannot pay their mortgage.
But there is another option: interest-only mortgage loans.
What is an Interest-Only Mortgage Loan?
As the name suggests, an interest-only mortgage loan is a loan for which the borrower pays only interest each month, not the principal. These types of loans allow borrowers to receive the money they need and avoid harming their credit scores while making smaller monthly payments.
Interest-only mortgage loans are particularly useful to homeowners who have financial difficulty, as it gives them time to secure a steady source of income without losing their homes. They might also be of interest to new buyers who need to move fast on a piece of property but cannot make full payments right away.
Are There Downsides to an Interest-Only Mortgage Loan?
As enticing as they may be, interest-only loans do have their drawbacks. Many lenders limit the availability of such loans, which means that you may not be able to get one. Those who do secure such a loan may pay a higher than usual interest rate.
Borrowers also run the risk of becoming too accustomed to the smaller payment, and they fail to plan for the larger payment when the interest-only loan runs out and they need to return to payments on the principal.
But the biggest downside to an interest-only mortgage loan relates to its most important benefit. Because borrowers of these loans do not pay on their principal, they end up paying more overall than those with standard loans. And they often take longer to finish repaying the loan.
Is an Interest-Only Mortgage Loan Right For Me?
Mortgage House can help you answer that question. Use our loan calculator to determine your monthly payment, and contact our representatives today to discuss your options. We can direct you to the right loan package for your needs!
