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Mortgage Loans Debt
Platinum Boarder |
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Interest Only Mortgages - 2007/05/09 17:57
An interest only mortgage requires the borrower to make monthly payments to their mortgage lender so that the interest on the amount borrowed is covered. It is necessary to setup a separate long term investment plan that will accumulate enough funds to pay off the full loan amount in your planned period of time. But the name itself is misleading. Interest only loans are not a type of mortgage. Instead interest only is attached to any type of mortgage as an option.
With an interest only mortgage there is no repayment term since the mortgage is only paid off on adequate maturity of investment plan provisions. As such the interest-only mortgage continues at whatever rate agreement has been chosen until other funds are available to pay back the borrowed capital sum. When arranging such a mortgage, you will also need to make provisions to accumulate the money needed to repay the capital amount at the end of the agreed term, this is an important aspect and you need to be ensure that the investment will be sufficient for this purpose.
During the term (typically 5-6 years) on which you will only pay back the interest accrued, no equity will be built up on your home. But by having the funds free by avoiding full mortgage repayments you could close the deal on the home you want rather than the home you can afford.
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Loans
