Interest Only Loans Pros and Cons

An interest only lona means you pay only the interest portion of your mortgage for a fixed term. Usually in 5 to15 years (depending on the initial interest only term set up when you set up your mortgage) you will need to start making principle and interest payments, refinance or pay off the loan in a lump sum.

Those who are regular wage earners who take out a moderately sized home loan and don't have a reliable investment stratergy aren't the best canidates for these loans.

However, if your income consists mostly of infrequent commissions or bonuses, you expect to increase your income significantly in the next few years, or if you plan to pursue an effective ionvestment plan, an interst only loan may be a good fit for you.

An interest only mortgage allows you to make much smaller monthly payments and pay down principle when you get a bonus or hefty commission.

An interest only loan is a great tool if you or the co-borrower is in school or plans to get a sizable increase in salary in the next few years. Your I.O. payments are much lower and when the income increases money can be applied towards the principle. Many first time home buyers will take advantage of the I.O. mortgage to get their monthly payments close to what their monthly rent payment is, the advanatge to this is: They now have a property they can build some equity and take advantage of the tax deduction.

An interest only loan can be risky if you're not a disciplined saver or investor. Considering that you can voluntarily pay down the principle, in addition to making your interest only payments, you should do that or invest your money wisely. Many investors will make more money using the money they would have paid into monthly principle by investing it for a higher rate of return than the cost of the monthly principle.

There are many great advanatges of a I.O. type mortgage. Our 30 year fixed mortgage with an I.O. option for the first 15 years is one of my most popular products right now because of the loan fixed rate and the option to pay I.O. for the first 15 years!