A short term interest only mortgage is an ideal way to purchase a property when home prices are high. It also puts home ownership within reach for those who anticipate significant increases in income or receive unexpected funds such as from inheritances.
Benefits
Short term interest only mortgages are the perfect solution for those who don’t plan on building equity or refinancing anytime soon. Furthermore, they free up cash for other financial goals or investments.
Purchasing a More Expensive Home: An interest-only mortgage may enable you to purchase a property of greater value compared to conventional loans, which require more money for the down payment. Lenders assess how much you can afford based on your income, credit history and other factors.
Repayment Risk: Once the interest-only period ends, you’ll have to repay the full amount of the loan unless you refinance to include principal payments as well. This could put you into negative equity, meaning you owe more on your house than its worth.
Tax Deduction: Your mortgage payments during an interest-only period may be tax deductible, provided you meet certain requirements. This could make the loan attractive to those in higher tax brackets.
Drawbacks
Short term interest only mortgages can be an attractive choice for home buyers who need to move quickly into their new residence. However, there are certain drawbacks to these loans that should be taken into account before determining if they’re suitable for you.
One major disadvantage is that you do not accrue any equity in your home. This becomes especially relevant if you decide to sell it later on.
Another potential drawback of taking out a mortgage with negative amortization is that you could end up paying more interest over its life than if you had taken out a principal and interest mortgage.
To avoid these potential drawbacks, select a mortgage lender who is reliable and understands your financial situation. Discuss with them your goals and the available options so you can ensure you’re getting the most out of your mortgage.
Options
If you’re looking to save money on housing expenses, an interest-only mortgage may be the perfect solution. These loans usually feature an initial period of 5 or 10 years with only interest payments required.
The main benefit of mortgage financing is that you free up cash to use for other expenses or investing. However, keep in mind that rates could rise after your initial term ends and cause your monthly payments to increase significantly.
Furthermore, an interest-only loan or option ARM does not build equity in your home. If you sell your house before the interest-only or payment option term is up, you could owe more than the original loan amount due to negative amortization.
Repayment
Are you in the market for a new home? A short term interest only mortgage could be your perfect solution. These loans come in various forms, such as fixed rate and adjustable mortgages or option ARMs. Plus, their monthly payments aren’t nearly as expensive as you might think!
Comparing rates from various lenders is also beneficial. Your mortgage broker should be able to provide you with a comparison sheet so you can make an informed decision that meets both your needs and budget.
Although not suitable for everyone, a short-term interest only mortgage could be the perfect way to help you break into the housing market or purchase your dream home. The key is finding an experienced lender with whom you can collaborate throughout this complex process. You should also take into account other elements like affordability, credit rating and personal financial situation when making this decision.
