What is an interest only mortgage?
In an interest only mortgage, you cover interest on your payments for a specific period of time (typically 5-10 years) while your principal remains unchanged. This allows you to reduce your monthly mortgage payments and afford a more expensive home. An interest only home loan can be a great way to divert your cashflow toward retirement, college tuition or a rainy day fund.
Is an interest only mortgage right for you?
Here are five questions to help you determine whether an interest only mortgage is the perfect match:
- Are you confident your income will grow in the future, but want to purchase high-value real estate now?
- Are you more interested in lower monthly mortgage payments than building home equity?
- Are you looking to invest your money in something other than your home?
- Are you fine with the prospect of your monthly mortgage payment going up when the interest-only term ends?
- Do you own investment homes and rent them out?
If you answered “YES” to any of these questions, an interest only mortgage might be your best bet! A word of consideration—while interest only home loans offer low monthly payments during the initial term of your loan, your monthly payments will rise after this term ends to cover the principal of your loan.
If you don’t expect your income to increase in the foreseeable future or if you’re unsure you’ll be able to make the larger payments later on, a 15 or 30-year fixed rate mortgage could be a better fit. In addition, it may be more difficult to refinance your mortgage if your home value doesn’t increase during the lifetime of your loan.
Why trust Guaranteed Rate with your interest only mortgage?
At Guaranteed Rate, we’ve been helping hundreds of thousands of people find home loans since the year 2000. Licensed in all 50 states and Washington DC, our home loan experts can help you find the perfect interest only mortgage for an amazing home. Apply now!