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The Pros And Cons Of An Interest-only Home Loan

Feb 5, 2008
As with any other type of mortgage, there are some benefits and some drawbacks to having an interest-only mortgage. It's in your best interest to know about them and make an educated decision based on this information.

Interest-only mortgages have a few disadvantages to them. These are the most common concerns formulated around an interest-only mortgage:

1. It's riskier loan than a fixed rate loan because the payments may change every month depending on the overall economic conditions. Even though you have the flexibility to choose between one of four payments, the rates may go up or down without you being able to control them.

2. If rates go up by a large margin, you may have trouble making the payments.

3. It is a more expensive loan than a regular loan over the life of the loan.

4. It's is harder to understand because of its characteristics.

5. Your initial low rate will adjust to a level higher than the going fixed rate level in almost every case because interest-only loans have initial fixed rates that are set artificially low.

On the other hand, there are also some benefits that you need to know about before making a choice. These are the main benefits:

1. You can afford to buy a bigger home because the lower initial monthly payments help you get a larger loan.

2. You can use the saved money for investments, home improvements or to pay other bills.

3. You benefit from lower rates without refinancing.

4. You can have an easier time to access this type of mortgage.

Interest-only home loans are usually a good choice if you think you're going to stay in the house for many years, if the interest rates are expected to go down or if you think you will be earning a lot more money in the future.

Of course, it's your opportunity to study this and other types of loans to choose the best fit for your specific needs. You may want to get some advice from a local mortgage broker who can guide you to the best loan possible after going over your individual financial conditions.
About the Author
The author, Igor Buces, works as a Miami mortgage broker . You can read many mortgage informational articles or ask him any questions at the Miami mortgage lender home page.
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