Interest Only Mortgages
Interest-only mortgages differ from the rest of the loan programs as during the initial period the borrower doesn’t have to worry about repaying the principal amount. These loans can either come with fixed interest rates or adjustable, becoming fully amortized at the end of the interest-only period.
When interest-only loans become completely amortized and the interest-only period comes to an end, you’re left with increased monthly payments. The significant increase in monthly payments is a direct result of the loan fully amortizing after the interest-only period ends. The longer the interest-only period you opt for, the bigger your monthly payments will be.
Interest-only mortgage payments save you a significant amount of money in the short run but if you’re opting for a 30-year loan plan, it’ll cost you a lot more. Generally, this isn’t a cause for concern as most borrowers are able to repay their debt before the loan term comes to an end.
These mortgage and loan programs work best for people with more sporadic incomes, making it easier for them to pay the interest-only amount during tough times and utilize their income spurts and bonuses to repay the principal.