Is An Interest Only Mortgage A Good Idea

Is An Interest Only Mortgage A Good Idea



Is An Interest Only Mortgage a​ Good Idea?
If you​ are looking for a​ home but you​ know that paying a​ mortgage will be a​ severe drain on​ your finances,​ then perhaps you​ should look at​ getting an​ interest only mortgage .​
If you​ are unsure about what an​ interest only mortgage is​ and how it​ can help you,​ then this article can provide you​ with some useful tips on​ getting an​ interest only mortgage.
What is​ an​ interest only mortgage?
An interest only mortgage is​ a​ mortgage where you​ only pay back the​ interest on​ the​ loan,​ and none of​ the​ capital debt is​ repaid directly .​
Once you​ get to​ the​ end of​ the​ mortgage term,​ you​ will pay back the​ capital payment in​ full.
How do you​ pay back the​ capital?
Although you​ don’t pay the​ capital back directly through your monthly mortgage payments,​ you​ indirectly pay for the​ capital .​
You pay for the​ capital through an​ investment fund or​ other lump sum .​
So,​ instead of​ repaying your mortgage capital each month through mortgage payments,​ you​ may monthly payments into an​ investment fund .​
Apart from investment funds,​ the​ other main ways to​ pay off the​ capital are:
· Savings
· Switching to​ a​ repayment mortgage
· Another lump sum such as​ inheritance
What is​ the​ advantage of​ this?
Although you​ are still making monthly payments into an​ investment fund,​ these payments are likely to​ be a​ lot lower than the​ monthly mortgage payments you​ would pay on​ a​ normal repayment mortgage .​
Your interest only payments will be low each month and so if​ you​ cannot afford to​ pay a​ lot each month at​ the​ moment,​ an​ interest only mortgage might be a​ good idea .​
Also,​ the​ idea is​ that the​ money you​ put into the​ investment fund will mature and leave you​ with enough money to​ pay off the​ capital at​ the​ end of​ the​ mortgage term as​ well as​ leaving you​ with some extra money.
Are there risks?
Of course,​ there are a​ number of​ potential risks of​ getting an​ interest only mortgage .​
The first problem is​ that if​ you​ are hoping to​ pay off the​ capital by switching to​ a​ repayment mortgage later on,​ you​ will be paying back a​ lot more money than if​ you​ started on​ a​ repayment mortgage .​
Although you​ may find it​ hard right now,​ getting a​ repayment mortgage to​ start with might be a​ better option .​
However,​ the​ main risk involved with interest only mortgages is​ that the​ investment fund you​ set up will not be enough to​ pay back the​ capital at​ the​ end of​ the​ mortgage term .​
If you​ cannot pay back the​ capital then you​ could end up losing your home at​ a​ time in​ your life that it​ will hit you​ hardest,​ such as​ at​ retirement age.
If you​ are going to​ take out an​ interest only mortgage,​ make sure that the​ funding method you​ use is​ safe,​ and that you​ have contingency plans if​ the​ fund is​ insufficient to​ pay back the​ capital .​
If you​ do this,​ then getting an​ interest only mortgage can be a​ great way of​ keeping your payments low whilst you​ improve your income.




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