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Interest Only Home Mortgage Loans - Good Or Bad Idea?
Is an interest only home mortgage loan a good or bad idea for
financing a home? These loans have become very popular and are
one of the many different kinds of financing available for
property.
Opinions vary as to whether an interest only home mortgage loan
is a good idea for the average home owner, with valid points
being made on both sides. If you are in the market for a home
you need to consider all the finance options available to you,
together with your ability to repay them.
Here are some interest only mortgage loan pro and cons to look
at both sides of this kind of financing.
If you are employed full time, single and making a good salary
then an interest only home mortgage loan may not be the best
financing for you. That's because you could pay off your loan at
a lower rate of interest and in less time with a different kind
of loan program.
On the other hand, you could save a lot of money by only paying
the interest. It is possible that if you invested this in a safe
investment you would not only have enough to pay off the
principle on the mortgage, but would also gain a little capital
for yourself at the same time.
This of course is a gamble, because how many people will
actually invest the savings? However, if you have no other
financial responsibilities, it's one you might find attractive.
If you work in seasonal employment, like in the tourist
industry, you may find that paying an interest only monthly
mortgage payment allows you the freedom to pay a minimum amount
when you are in "off season".
But during the time you are working, you can make accelerated
payments off the principle in addition to the interest.
The risk of paying an interest only mortgage loan repayment is
that the principle is not being repaid. Unless the price of
homes in your area rises, you don't build up any equity in your
home.
Paying the monthly mortgage payment on an interest only
mortgage can become like paying rent. You don't have the safety
net of being able to sell your home to raise cash if you are
faced with some emergency in your life.
As a young professional just starting out on your own, this
might not be an issue you need to consider. But if you are
married and have a family, you should seriously consider the
implications of not having the kind of mortgage that allows you
to build a financial safety net.
Home equity gives you a form of financial security that can
come in handy if you really need to use it. This should be a
consideration when deciding which home loan to choose.
A lower monthly mortgage payment will always look attractive on
paper, but consider all the implications carefully before taking
the option of an interest only mortgage loan as a way of
financing your home.
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