Interest Only Mortgage - Borrow Now, Pay Later?

By Mark Bonders for mortgage-and-loan-info.com

An interest only mortgage is a mortgage wherein you only need to pay the monthly interest on the amount borrowed for a fixed amount of time (usually anywhere between 5 to 10 years). If you are interested in this type of loan, you can easily compute your monthly payments using a mortgage payment calculator online. You can also compute how much you need to pay after the interest only period (when you are required to pay the interest and the principal).

Interest Only Mortgages - Then and Now

Interest only mortgages (IOM) started off as mortgage options for people who had a need to free up cash at the start of their mortgage terms for investing purposes. However, this has now changed and almost anybody can avail of IOMs.

Most IOMs are offered in adjustable rate mortgages or ARMS, but there are some fixed rate mortgage (FRM) lenders who offer this option as well. One of the good things about interest only mortgages is that it is more flexible when it comes to payments to the principal amount whenever you do want to make such a payment within the interest only period (e.g., if you find yourself with a substantial amount of extra cash, some investments have paid off, etc.)

After the specified interest only period, several options are available to you; you can renew the interest-only mortgage, repay the capital, or switch to a principal and interest type of mortgage. Not all these options are available from every mortgage lender so be sure you are clear which options are possible at the end of the IOMs you are considering to take. After all, one is never too sure about his or her financial state a couple of years down the road.