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.
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.