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Mortgage Interest Only Fixed Mortgage
If you choose an interest-only option for a fixed-rate mortgage, the term of the loan is divided into two periods. During the first period, your monthly payment is lower because you pay only interest and no principal. In the second period, you pay both. For example, on a 30-year fixed rate interest-only mortgage, you might make interest-only payments for the first 10 years, and then pay both principal and interest for the remaining 20 years. The actual principal of the loan (the amount you borrowed) will be paid off in the second period.
While interest-only loans can free up cash for other purposes during the initial period of the loan, you should remember that during the interest-only portion you will not be reducing the principal amount you owe. When you begin paying both principal and interest in the second period of the mortgage your monthly payments will be significantly larger and you need to make sure the larger payment is something you can afford prior to entering into this type of loan. Most regulated lenders originating interest-only mortgages will qualify you based on the full principal and interest payment, and not the interest-only payment.
Some people who took out interest-only loans just before the housing crisis hit found themselves overextended when they began paying both principal and interest – and ended up losing their homes to foreclosure. While they can be an excellent mortgage for certain borrowers, interest-only mortgages are not for everyone.
As with all interest-only mortgages, interest-only, fixed-rate mortgages are not for all borrowers, and should be offered appropriately only to borrowers who:
* Clearly understand that their payments will significantly increase when principal and interest payments begin.
* Can qualify for this type of mortgage at the fully indexed, fully amortized rate.
* Are able to make payments at the fully amortized rate (the second period of the mortgage).
Do not fall into the trap of believing that your financial circumstances will change in the future. If you cannot afford the fully amortized rate initially, do not gamble with your future, and instead select a mortgage you know you can afford.
Read below more on Mortgages
Mortgage Guide – What are the Advantages of Fixed-Rate Mortgages
Mortgage Guide – What to watch out with Fixed Rate Mortgages
Mortgage Guide- Tips to Find the Best Mortgage
Mortgage Guide – Tips to Choose the Right Mortgage
Mortgage Guide – Tips to Getting Mortgage Costs Information
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. Mortgage Guide – Understanding Interest-Only, Fixed-Rate Mortgages is brought to you by SimplifyEm Pay Rent Online and Property Management SoftwareYou might also want to read:
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