Interest only mortgages can be an excellent tool for a short-term financial need. It is important to know what you’re getting into with an interest only loan before you borrow. Here are several tips to help you keep you out of trouble when financing your home with an interest only mortgage.
Traditional mortgage loans have monthly payments that are amortized for the entire duration of the loan. This means every month that you make a payment, part of that payment is applied to your finance charges in the form of interest, and part is applied to pay down the principle loan balance. Interest only home loans are different than traditional mortgages in that they do not have fully amortized payments during the interest only period.
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