Interest Only Mortgage Loans
Becoming an informed consumer is one of the best ways to ensure that you are making the smartest, most practical mortgage related decisions possible. It is essential to understand that not all mortgage options and strategies, such as interest only mortgage types and other sorts of adjustable rate mortgages, or other variations on the more traditional mortgage models, are suitable for all market conditions. Taking the extra time to learn about the housing market -- its cycles, its ebbing and flowing – is part of being a well-informed consumer. With that said, however, there are certain situations and market conditions in which it makes great financial sense to use one of the various options beyond the standard mortgage types.
Interest only mortgages can seem frightening to those that do not fully understand how they are used and at which point in the housing market and mortgage and lending cycle that this particular option can be beneficial to the borrower. After all, it can seem quite risky to be paying a monthly sum that is not reducing the principle, and many fear that in such a case the borrower is not gaining equity in the home. After all, home values can fluctuate and depending strictly upon appreciation to build equity is not nearly as secure a means of building equity as is paying down the principle.
Such concerns are indeed valid, which is one of the reasons that this particular mortgage option is best suited for the well-organized and fiscally disciplined borrower. A financially disciplined borrower will, from the very start, have an eye on the future, already having a solid plan for when the period of interest only payments modifies into a more standard sort of arrangement, typically with significantly higher monthly payments. The smart borrower will not only make the monthly interest only payments on time, but will also use extra money, when it is available, to chip away at the principle and build up home equity.
The most advantageous time to use this sort of mortgage option is when the market is at the point of its natural cycle in which the interest rates are high and moving upwards. When the rates, as they typically do eventually, begin to move downwards, that may be the time to consider shifting to a more traditional sort of fixed rate mortgage.
Those who use the interest only mortgage option as a means of buying more house than they can truly see themselves affording on their current and near future incomes, in hopes that things may change before the period of interest only payments comes to an end are, in many cases, making a serious error in fiscal judgment. This is simply not the best option for those without a fairly solid means of dealing with the changes that will occur in the mortgage agreement.
The interest only mortgage option is not one to be feared, nor is it an option that should be automatically discounted. During market periods in which interest rates are high, this type of mortgage can be an excellent tool in the hands of a financially savvy home buyer with a healthy splash of fiscal self-discipline. Use it well, and you can secure the home of your dreams. Use it poorly, and you can cause serious damage to your credit history and, perhaps, even lose the home you worked so hard to get.