The Pros and Cons of Interest-Only Home Loans

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 than a fixed rate mortgage because the monthly payment can change as the general economic conditions change. Even though you can choose among a few different payment options, you don\'t have any control of the changes in the monthly payments.

2. If interest rates go up significantly, you may find it difficult to make your monthly payments.

3. It may be a more expensive loan than a fixed rate loan over the duration of the mortgage.

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 can enjoy lower rates without refinancing.

4. It is easier to qualify for this type of loan.

Interest-only loans are a good fit for people who will be making more money in the future, who are thinking to stay in the house for some years or if interest rates are going down in the future.

As with every mortgage, it is your responsibility to learn about the different types of loans available to you. Of course, you are not alone. You can always contact a local mortgage broker who will guide you through the process of choosing the right type of loan for your specific economic situation.

The author, Igor Buces, works as a Miami mortgage broker. You can read many mortgage educational articles or ask him any questions at his Miami mortgage company home page.

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