What Is an Interest Only Mortgage?

If you are planning to purchase a house, you should make yourself familiar with different types of mortgage loans that you can get. This is necessary so you can be sure to get the best deal for yourself. Each loan type has its unique qualities which would make it ideal for certain situations and certain types of borrowers. One type that can be a great help for you is an interest only mortgage.

Explanation of Interest Only Mortgage

When someone with a very low income wants to purchase a house, there are few options open. It is usually very difficult for a person in that situation to get a home loan. That is because when lenders take a look at the income and the ability to pay, the borrower is automatically disqualified. There is an option however that many are not aware of, and this is an interest only mortgage. With this kind of mortgage, you would only have to pay for the interest for a certain period. The principal is not going to be affected. Read more http://www.theguardian.com/money/2015/sep/04/million-interest-only-mortgage-repossession-citizens-advice

How It Can Be Beneficial

An interest only mortgage is beneficial because the monthly payments are very small and would only cover the interest. That would allow a person with a low income to buy a house. Though there are some restrictions on the arrangement, this is a very good deal for people with insufficient income. Click here to read more info about mortgage benefit.

The Problem with Interest Only Mortgage

The problem is the fact that the principal will remain intact and would not be reduced by the payments. There is a limit to the interest only period and after that payment towards the principal would have to be made. The problem begins when the borrower still does not have enough money.

Interest Only Mortgage

Who Can Benefit from IO Mortgage

There are several types of borrowers who should get some benefits from an IO mortgage. Here are some examples.

Borrowers with an unsteady or irregular income should get some benefits from this form of a mortgage. When their income is small, they can pay for the interest only. When they get more money, they can pay more as well.

Buying a more expensive house than what you can afford? In that case, an IO option is good one. Of course, this would only work if you are expecting to get a higher income shortly.

If you think that you can earn more by investing your money rather than pay your mortgage, then an IO mortgage might make some sense.

With an IO mortgage, any extra payment that you make would cause the payment for the next month to go down. This is the only form of a mortgage loan to have this kind of feature. So if you want to have your monthly payments to go down, then this is a great option.

Who Should Take Interest Only Mortgage Loans?

There are many reasons why a person can be hesitant to apply for a mortgage. One reason is that they still cannot provide the recommended 20% of a down payment. Another common problem is a bad credit standing. Then there is a problem with income. A limited income would leave few options open when it comes to mortgage loans. Some people just opt to wait until they could increase their monthly income. One way to get around it though is to opt for an interest only home loans.

Interest Only Mortgage Loans – Who Is It for?

There are several situations where interest only or IO mortgage loans is a great option. Here are some examples.

We have been talking about those with limited income and how they cannot get great deals because of what they earn. With an IO loan, they get a mortgage loan and yet they would only have to pay a limited amount which would only correspond to the interest of the loan. This period would not last, and the principal would have to be paid eventually, but it is a great way to start.

Another situation where an IO mortgage makes sense is when the borrower has an income that keeps on changing. This would allow making small payments when they have a little money coming in then make large payments when they earn more.

If you are interested in investing your money in other options, then an IO loan makes sense. Instead of your money being tied down in mortgage payments, you can just pay the interest and use the rest of your money in investments which could pay off. Read more at http://www.mortgagebroker247.com.au/

Who Should Take Interest Only Mortgage Loans

When a borrower has a second mortgage, it might be a good idea to prioritize that. You can just pay the interest on the IO mortgage until the second mortgage has been taken care of.

If you want to buy a good house that is available in the market but your resources do not allow it, then interest only mortgage loans would be a good move. It would let you get a house now and let you work on ways to boost your income.

Be On the Lookout

Like with any other financial product or deal, there are some things that you have to be on the lookout for when it comes to interest only mortgage. You have to be aware of its features and qualities. You should never allow yourself to be misled by supposed features that do not exist.

Misconceptions about IO Mortgage Loans

Here are some of the more misconceptions concerning IO mortgage loans.

It does not need mortgage insurance

The interest is lower

The interest is fixed during the IO part of the term

It is easier to amortize an IO mortgage

It is best to realize that IO mortgage is considered a high risk loan. When it is a high risk deal, the lenders will likely make it even more expensive.