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Interest Only Mortgages. The borrower only pays the interest on the mortgage through monthly payments for a term that is fixed on an interest-only mortgage loan. The term is usually between 5 and 7 years. After the term is over, many refinance their homes, make a lump sum payment, or they begin paying off the principal of the loan.
Pros and Cons of Interest-Only Loans. After the interest only period is over, the borrower will then make a large balloon payment at the end of the term to retire the principal balance. In comparison, with traditional loans, a portion of your payment goes towards the interest as well as the principal balance each month.
In a short-term situation, an interest only loan could be the financial boost you need to buy an investment property or to do those home renovations while keeping your repayments as low as possible. Is this type of lending viable? Let’s take a closer look at the pros and cons of an interest only mortgage. Firstly, what is an interest only loan?
With an interest-only mortgage, each month you pay only the interest owed and none of the capital you’ve borrowed. This makes your monthly payments far less than if you were repaying capital at the same time. At some stage, the mortgage will come to an end. You’ll have agreed the date when you took the mortgage for.
The benefits and pitfalls of interest-only home loans – Interest-only home loans can be used by home owners for number of reasons.. commitments, interest only home loans have both pros and cons attached.. before the interest only period ends, you will still owe the full value of the mortgage.
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A lower interest rate means a lower monthly payment. Just a 2% decrease in interest rate could save you hundreds of dollars on your monthly payment. If you are struggling financially or at risk of foreclosure, this may be all the incentive you need. Additionally, you can escape a wishy-washy, adjustable rate mortgage and enjoy a new, fixed rate. Shorter Loan Period
To help you figure out what kind of home loan repayments are within. which can also affect your mortgage repayments. Here are some of the pros and cons of each to help you decide between the two:.