Mortgages are very popular and there are scores of mortgage loan options available today. Of the various types of mortgage loans available in the market, interest only mortgage is one good option (for a number of people).
Interest only mortgage, as is clear by its name, is a mortgage loan where you pay only the interest component for the first few years. So, interest only mortgage helps you in reducing your monthly mortgage payments for some initial period. However, interest only mortgage recovers these temporary reductions by hiking up your monthly mortgage payments for the period after that (i.e. after the initial interest only mortgage period is over).
So why would anyone go for an interest only mortgage?
As we know, interest only mortgage helps us in reducing our monthly mortgage payments for the first few years. This means, through interest only mortgage, you are reducing your total monthly mortgage outgo (even though this is recovered by mortgage lender later on). Effectively, you are paying a lower interest rate (lower that what you would have got for a mortgage that was not an interest only mortgage) in the first few years and a higher rate in the later years. This works out very well for a lot of people who, currently, are not earning enough so as to be able to make the monthly mortgage payments in full but are expecting to earn more in future. So, by going for an interest only mortgage, they are reducing the amount they need to pay till their pay is higher.
Once the interest only mortgage period is over, they can start paying both the components i.e. interest, as well as, principal. However, interest only mortgage is not meant for (or used by) just these people. Interest only mortgage is also a popular option among people who know of other avenues for investing money (i.e. the money saved by using interest only mortgage for the first few years) where they can get better returns (better than what why would have got if they had invested this money in paying back their mortgage loan i.e. by going for the normal mortgage instead of interest only mortgage). However, you should not go for an interest only mortgage if you are not absolutely sure of getting better returns than what you would have got if you didn’t go for interest only mortgage.
So, interest only mortgage is an option that is good not only for people who have a lower payback capacity for initial years, but also for people who know of ways of getting better returns from the money saved (temporarily) through interest only mortgage.
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