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Is An Interest Only Mortgage Really in a Buyer’s Best Interests?

It seems only yesterday that lenders were coming up with new and better ways to get people into the housing market. Gone were the stern bankers who appeared to delight in turning down loan applications and in their place came a group of lenders that adopted the tactics formerly reserved for dubious used home furniture salesmen. Thankfully some of this foolishness has subsided but non-traditional loans like an interest only mortgage loan still exist. While risky, this type of loan may bear consideration for some.

Interest only mortgages are home loans where the buyer is only paying the interest due on a monthly basis and is not contributing towards the loan’s principal. The most obvious benefit to the buyer is the lower monthly payments at the start of the loan. These cheaper payments can put some buyers into a bigger home as they may be able to borrow more.

If the buyer is contemplating a short stay in the property and the loan’s terms are also relatively short in duration, this type of loan may be worth some detailed online research. The upside is that the marketplace for more expensive homes is open to some who could not typically afford this, and if the market gets hot, the house should go up in value. The flip side is that today’s real estate market is still struggling and most homes are not appreciating in value dramatically.

Anyone thinking about this type of loan needs to explore in detail interest only mortgage rates and even more importantly, the specific loan terms. It is possible to find an interest only mortgage calculator online to assist in truly understanding how these loans work and look at the savings versus the risks. A potential loan candidate must always be aware that the day will come when it is time to address paying the principal.

The bottom line on an interest only mortgage is an honest assessment of the risks involved in trying to buy a home that is out of one’s price range. If the cost is such that the potential buyer simply cannot afford to pay both principal and interest together, this should be a warning flag. Eventually, the principal will need to be addressed and if the money is not available, foreclosure is a very real possibility.

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