Understanding Interest Only Mortgages

<h1>Understanding Interest Only Mortgages</h1>Author: <a title="Lorna Mclaren" href="http://www.articlesbase.com/authors/lorna-mclaren/1941.htm">Lorna Mclaren</a> There are only two things people should keep in mind before taking on an interest-only mortgage. The name interest-only mortgage is misleading. If truth be told, there is no such thing as an interest-only mortgage. In an interest-only mortgage, you will still have to pay for the loan principal. When you get an interest-only mortgage, what you're really getting is an interest-only payment method which you can combine with other traditional mortgage types.
The other thing you need to keep in mind is that the stated benefits of interest-only mortgages are exaggerated. In a standard mortgage, 95% if each dollar paid to the lender goes to the loan interest. Thus on a $100,000 standard loan with 6% interest, the total payment would be $600 with the $500 going to interest and the other $100 for equity.
A Brief History of Interest-Only Mortgages
Interest-only mortgages are not relatively new concepts. The idea behind interest-only mortgages was spawned from the more flexible and more inventive jumbo mortgage markets. Because of this, interest-only mortgages are traditionally a loan type preferred by savvy investors and well-heeled clients who want to use the principal portion of their payment on other more productive investments.
Because interest-only mortgages are jumbo loans, the difference in monthly payment grows with the larger loan amount. For example, in a $100,000 interest-only mortgage loan, the per month difference is $100. If the loan is worth $1,000,000, then the difference per month grows to $1,000, a substantial amount that can be put to better use. The savvy investor can make it so that his investment using the money he gets from the per month difference growth of an interest-only mortgage can increase within a short period, thus leveraging incomes to build assets.
This is partly the reason why interest-only mortgages are still preferred by big-time investors. However, it is only natural to assume that there are some considerable risks associated with an interest-only mortgage, especially when it comes to stocks. 
Interest-only mortgages have payment periods based on adjustable rate mortgages. This however is not always the case. Interest-only mortgage payment schedules are also offered in fixed rate mortgages as well. Interest-only mortgages have also gone mainstream so virtually anyone can borrow money with this type of loan. 
Temporary Payment Periods
The payment periods for interest-only mortgages almost never run for the entire term of the loan. Even with a fixed rate mortgage, interest-only mortgages are still bound to be only temporary. And InterstFirst product only lets interest-only mortgage payments for half of the total term.
The expiration schedule of an interest-only mortgage payment is usually at the end of a set period. This makes interest-only mortgages compatible to "amalgam" adjustable rate mortgages. When the interest-only mortgage payment comes to an end your payment will then rise to include principal and interest.
The great thing about interest-only mortgages
Interest-only mortgage payments also have their advantages. Borrowers can find that there are various practical benefits that an interest-only mortgage can offer. First is that, interest-only mortgages can help you in accumulating assets. Because interest-only mortgages do not demand so much during its initial years, you can use the payment differential in a cash investment. The "spare" cash provided by interest-only mortgages may also be used for college money, retirement money, and even as a seasonal income factor.
Of course, you are the only person who can really tell if the mortgage option is right for you or not. However, awareness of the issues that surround those choices is a good way to make a more informed decision.
About the Author: Find out more about financial issues at<a href="http://www.123-debt-consolidation-loans.com"> <a target="_blank" href="http://www.123-debt-consolidation-loans.com">http://www.123-debt-consolidation-loans.com</a></a> and start gathering as much information as possible before you make your decision.Article Source: <a href="http://www.articlesbase.com/">ArticlesBase.com</a> - <a href="http://www.articlesbase.com/mortgage-articles/understanding-interest-only-mortgages-28444.html" title="Understanding Interest Only Mortgages">Understanding Interest Only Mortgages</a>

There are only two things people should keep in mind before taking on an interest-only mortgage. The name interest-only mortgage is misleading. If truth be told, there is no such thing as an interest-only mortgage. In an interest-only mortgage, you will still have to pay for the loan principal. When you get an interest-only mortgage, what you're really getting is an interest-only payment method which you can combine with other traditional mortgage types.

The other thing you need to keep in mind is that the stated benefits of interest-only mortgages are exaggerated. In a standard mortgage, 95% if each dollar paid to the lender goes to the loan interest. Thus on a $100,000 standard loan with 6% interest, the total payment would be $600 with the $500 going to interest and the other $100 for equity.

A Brief History of Interest-Only Mortgages

Interest-only mortgages are not relatively new concepts. The idea behind interest-only mortgages was spawned from the more flexible and more inventive jumbo mortgage markets. Because of this, interest-only mortgages are traditionally a loan type preferred by savvy investors and well-heeled clients who want to use the principal portion of their payment on other more productive investments.

Because interest-only mortgages are jumbo loans, the difference in monthly payment grows with the larger loan amount. For example, in a $100,000 interest-only mortgage loan, the per month difference is $100. If the loan is worth $1,000,000, then the difference per month grows to $1,000, a substantial amount that can be put to better use. The savvy investor can make it so that his investment using the money he gets from the per month difference growth of an interest-only mortgage can increase within a short period, thus leveraging incomes to build assets.

This is partly the reason why interest-only mortgages are still preferred by big-time investors. However, it is only natural to assume that there are some considerable risks associated with an interest-only mortgage, especially when it comes to stocks.

Interest-only mortgages have payment periods based on adjustable rate mortgages. This however is not always the case. Interest-only mortgage payment schedules are also offered in fixed rate mortgages as well. Interest-only mortgages have also gone mainstream so virtually anyone can borrow money with this type of loan.

Temporary Payment Periods

The payment periods for interest-only mortgages almost never run for the entire term of the loan. Even with a fixed rate mortgage, interest-only mortgages are still bound to be only temporary. And InterstFirst product only lets interest-only mortgage payments for half of the total term.

The expiration schedule of an interest-only mortgage payment is usually at the end of a set period. This makes interest-only mortgages compatible to "amalgam" adjustable rate mortgages. When the interest-only mortgage payment comes to an end your payment will then rise to include principal and interest.

The great thing about interest-only mortgages

Interest-only mortgage payments also have their advantages. Borrowers can find that there are various practical benefits that an interest-only mortgage can offer. First is that, interest-only mortgages can help you in accumulating assets. Because interest-only mortgages do not demand so much during its initial years, you can use the payment differential in a cash investment. The "spare" cash provided by interest-only mortgages may also be used for college money, retirement money, and even as a seasonal income factor.

Of course, you are the only person who can really tell if the mortgage option is right for you or not. However, awareness of the issues that surround those choices is a good way to make a more informed decision.

Find out more about financial issues at http://www.123-debt-consolidation-loans.com and start gathering as much information as possible before you make your decision.

Rate this Article:

0 / 5 stars - 0 vote(s)

Re-Publish

Article Source: http://www.articlesbase.com/mortgage-articles/understanding-interest-only-mortgages-28444.html

Article Tags: Mortgage, Interest Only Mortgages

Related Articles
Related Q&A

Latest Mortgage Articles
More from Lorna Mclaren

Next day loans no faxing-Monetary solution without faxing formalities

By: Quinton Diamond | 30/12/2009
Faxing is the obstacle that makes delays in the loan approval? If you are in immediate need of additional funds and you are not having any way out, next day loans no faxing offer you a great financial help. In order to overcome your short term faxing hassles, these loans help you to obtain the instant cash aid without any hassle of faxing the documents at all.

New Bad Credit Mortgage Refinance Options from Obamas Stimulus

By: MPetrone | 29/12/2009
Bad credit mortgage refinancing options now exist for millions of homeowners. This is all because of the $75 billion stimulus plan President Obama has enacted to help struggling homeowners. This money makes refinancing a mortgage easier to do for homeowners with bad credit, upside down mortgages, or other financial problems. Here is how you can use this stimulus plan for yourself and refinance a mortgage.

The Great Recession and How Did We Got Here?

By: Instant Quote Store | 29/12/2009
I guess I am a little off the point here. What I am trying to say is in this trip I had a lot of time to think. My husband and I hardly speak to each other so I had lots of time to think. It was surprising how many people and places have been affected by the economy. It is the holidays and there isn’t very much joy out there. Not like in past years.

Mortgage Interest Rates in 2010 - Predictions, Trends, and Outlook

By: MPetrone | 29/12/2009
Mortgage interest rates are currently near all time lows due to a bad housing market and a struggling economy. Many homeowners are refinancing a mortgage now to take advantage of low rates and Government stimulus programs. However, I predict that things will change in 2010 and interest rates will go up. Here are my mortgage rate predictions for 2010, and how I made them.

New Mortgage Refinancing Options President Obamas Stimulus Plan

By: MPetrone | 29/12/2009
Mortgage rates are currently near record lows. Combine that with new mortgage refinancing options available from Obamas stimulus plan and millions of people can benefit from refinancing a mortgage. Here is some advice for homeowners looking to refinance a home loan with Obamas stimulus program.

Mortgage Refinance Stimulus Plan for Struggling Homeowners

By: MPetrone | 28/12/2009
Mortgage refinancing is a great move for many homeowners. With interest rates near record lows and new Government programs in effect, getting help refinancing a mortgage is easier than ever. Even struggling homeowners and those with financial issues can find help. Here is some advice for homeowners looking to refinance a mortgage with Obamas stimulus plan into the low mortgage interest rates available today.

Mortgage Bankruptcy: Tips to Save Your Home from Foreclosure

By: Simon Volkov | 28/12/2009
Mortgage bankruptcy filings are on the rise as homeowners continue to struggle financially. The American Bankruptcy Institute states bankruptcy filings rose 35-percent during 2009 and millions more are anticipated during 2010.

Could the mortgage market be starting to thaw?

By: Chris Borthwick | 28/12/2009
Many new mortgage deals have started coming on the market with a start looking likely for a return to a more competitive market environment. Better interest rates to help first time buyers buy their first home and allow those looking to move get a decent price for their home.

Is Atkins A Blast From The Past?

By: Lorna Mclaren | 25/05/2006 | Fitness
Is the Atkins Diet really a throw back to the hunter-gatherer time of human kind?

Have You Thought About Wedding Insurance?

By: Lorna Mclaren | 24/05/2006 | Non-Fiction
What if all does not go well? Do you have wedding insurance to fall back on?

Find Out What A Balloon Payment Mortgage Is

By: Lorna Mclaren | 17/05/2006 | Mortgage
Initally the interest rates and monthly payments are lower with a balloon payment mortgage but there is a one off large payment at the end of the term.

Looking For A Second Mortgage Loan?

By: Lorna Mclaren | 17/05/2006 | Mortgage
A second mortgage loan can be used for a variety of purposes and can make sense. Read on to find out more.

Discover The ADvantages of Fixed Rate Mortgages

By: Lorna Mclaren | 17/05/2006 | Mortgage
Fixed Rate Mortgages provide a level of stability that makes them popular with consumers. Having fixed rate mortgages acn allow for easier budgeting on a month to month basis. Read on and find out why you need to consider fixed rate mortgages.

Find Out All About Bad Credit Mortgages

By: Lorna Mclaren | 17/05/2006 | Mortgage
Are Bad Credit Mortgages actually possible? Read more about bad credit mortgages and lenders you believe history is history.

Discover Adjustable-Rate Mortgages

By: Lorna Mclaren | 16/05/2006 | Mortgage
Most people require a home loan at some point in their lives. There are so many different home loan products available that confusion can set in. One of these options is an adjustable-rate mortgage. Read on and find out exactly what an adjustable-rate mortgage is and if its suitable for you.

Understanding Interest Only Mortgages

By: Lorna Mclaren | 16/05/2006 | Mortgage
When it comes to deciding on what mortgage is the most suitable for you it is best to gather as much information as possible. Read on to discover more about interest only mortgages.