Only interest mortgages are mortgages where you pay interest only for a period of time. One third of all new mortgages are interest-only mortgages.
This mortgage pays the balance of the mortgage you need to purchase a home compared to a traditional mortgage loan. Many traditional mortgage loans are "amortized" within 30 years. That is, the amount you pay each month pays interest and helps reduce the loan balance; so at the end of 30 years, the loan is fully rewarded.
=== Why are only interest-based mortgages attractive? ===
Only a mortgage on interest allows you to buy bigger, more expensive homes in better communities.
Consider the traditional 30-year $250,000 mortgage loan with interest rate of 6.35%. The principal and interest payments are US$1,555.59. However, the only interest paid on mortgage loans was only $1322.92 - a savings of $232.67 per month. This makes housing more affordable.
And, for almost the same traditional monthly payments ($1,555.59 for principal and interest loans), paying only interest ($1,555.75) allows you to obtain a $294,000 loan. Adding a loan line of $44,000 can make it easy for you to afford a better home in a larger home.
The only short-term impact of interest on mortgages is:
1) Housing is more affordable so more people can purchase homes
2) People can buy more expensive homes
Another kind of interest only The way the mortgage comes from the perspective of the real estate agent. Only mortgage loans allow real estate agents to sell more homes because they are more affordable. Moreover, only mortgage loans allow realtors to sign more relaxed contracts on more expensive homes.
=== What are the shortcomings of interest-only mortgages? ===
Adjustable Rate: Most interest-only mortgages are adjustable. That is, as the key interest rate changes, the interest payments on the loan will change. Since the recent interest rate has been rising, the final monthly mortgage payment will also increase.
Homeowners with only adjustable interest on mortgage loans will find that their monthly payments are higher than when they first bought a home. If their income is not yet established, they will find it increasingly difficult to manage their mortgages.
Limited time period: Not only that, but also depending on the terms on which you only pay interest. You may only pay interest for a period of several years. You may expect to start paying the principal within five, seven or ten years. Once only the interest period ends, your monthly payment will increase because you will pay the principal and interest.
Many Americans live on a financial cliff. They save very little, spend most of their income, and get deeper into debt every year. If you buy the largest mortgage-only mortgage you can afford, you may find yourself in a predicament of defaulting on your mortgage.
Uncertainty in real estate prices: In addition, there has been no limit to the rise in house prices over the past few decades. As your home's selling price goes up, you are basically building assets. When you sell your home at more than your price, you can make a profit by adding value.
Money Magazine reports that many home prices are rising five times faster than personal income. They largely limit the housing price inflation credit rating to mortgage loans.
However, Forbes magazine points out that the prices on the coast have peaked. Rising interest rates have made the expensive housing less affordable. As the number of potential buyers decreases, expensive houses are more difficult to sell and prices may fall.
The theory used by many homebuyers in the past is that if house prices continue to rise, the profits that can be earned by selling houses may be bad - even if you have never repaid mortgage loans. This positive outlook is purely a form of real estate speculation. It may be worthwhile to apply Alan Greenspan's comments on "irrational exuberance" to holders of interest-only mortgages. He said: "But how do we know when irrational exuberance will overvalue the value of assets and then the value of these assets will be affected by Japan's unexpected and long-term contraction over the past decade?"
But if Rising interest rates have resulted in expensive housing prices being low, and if retired baby bombers start looking for smaller, cheaper housing, real estate prices may stagnate or even decline. This may leave interest-only mortgage holders "upside down" because their loans are worth more than their homes.
=== Only mortgage your interest? ===
Certainly only mortgages are valuable options.
If you are a savvy investor looking for cash flow from income-generating properties, then only mortgages are useful. You may have investment properties in multiple markets, and a decline in one market may be offset by an increase in another market.
If you can get interest-only loans at interest rates lower than traditional mortgages, you can use their lower interest rates. Just because it is "only a mortgage of interest" does not mean that, however, you must only pay the minimum amount of interest. You can pay you to reduce the principal (loan amount). Because your interest charges are less, you can reduce debt more quickly by paying monthly, as before.
Or, you can use your funds in principal payments to build assets at home by making improvements - just make sure the improvement measures really add value to your family. For example, kitchen and bathroom upgrades often add value to your home, but adding a built-in pool often does not help improve your home resale value.
The use of mortgages to refinance some of the houses can free up funds for other investments. Even if the price of your home falls, you still have equity in your home.
===Summary ===
In general, you need to understand the advantages and disadvantages of a loan with interest only.
If you buy a home simply because you can afford it, you may encounter unsuccessful financial education. Therefore, before you choose to pay only interest, please carefully assess your situation.
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