Tuesday, June 22, 2004

Is An Interest-Only Mortgage For You?

Interest-only mortgages have had a lot of press lately. At first glance, you might wonder who would want a mortgage that doesn't pay off principal from the beginning of the loan. Yet for many, the advantages of these mortgages are just exactly what the purchasers need.

There are a variety of products available, including fixed rate and adjustable mortgages. At the end of the interest-only term, the mortgages are re-amortized over the remaining term of the loan. These mortgages can be a good choice for purchasers who intend to sell or refinance before the interest-only period expires.

Interest-only mortgages are particularly popular among buyers who feel confident they will be getting pay raises in the future, but want a home they might not otherwise be able to afford. They are also appealing to those buyers who prefer to leverage or invest their principal elsewhere, as well as to those who have sporadic income.

The downside of these mortgages is that without paying down the principal, purchasers must rely on the market to build equity. A downturn in the market could be a big problem if they need to sell sooner than expected.

The bottomline is it all depends on the situation and future plans.

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