The Pros And Cons Of An Interest-only Home Loan
As with any kind of home loan, interest-only loans have some pros and cons. Before you decide on getting one, it’s a good idea what they’re so you can make an educated decision.
Interest-only mortgages have a few shortcomings. Listed below you can read about the most common ones:
1. It’s riskier loan than a fixed rate home loan because the monthly payments might change as the market conditions change. Even though you can select what type of payment to make (you have 4 choices,) you can not control the change in the interest rate you are being charged.
2. If rates go up by a big margin, you may have trouble making the payments.
3. It may cost you more over the life of the mortgage than a fixed rate mortgage.
4. It’s is harder to comprehend because of its characteristics.
5. The low rate that’s initially applied to you will go up above the rate for a fixed rate mortgage because they usually have an artificially low rate at the beginning.
On the other hand, there are also some benefits that you need to know about before making a choice. These are the main benefits:
1. You can afford more of a house because the lower initial payments grant you to take out a bigger loan.
2. You can use the money you save on making investments, paying bills or making improvements to your home.
3. You can take advantage of lower rates without having to refinance.
4. It is easier to qualify for this type of loan.
Interest-only loans are a good fit for people who will be making more money in the future, who are thinking to stay in the house for some years or if interest rates are going down in the future.
As with any other loan, it’s up to you to inform yourself of the benefits and drawbacks of this kind of mortgage. You may want to get a local mortgage broker who will guide you to the best possible type of loan depending on your individual financial circumstances.
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