By Scott Ankner
The statistics indicate that almost 6 million individuals have received mortgages which are interest only. Interest only mortgages implies that your monthly payments are applied only to the interest accrued on the debt and not the actual debt itself. Furthermore, the statistics has found that many first time house buyers are seeking interest only mortgages. The amount of first time purchasers that apply for interest only mortgages increases annually. Why such a rate of growth in this kind of mortgage loan? Well researchers have determined that by permitting first time home buyers to pay interest only, is the only method most of them are able to purchase a home.
An example of how an interest only mortgage works is say a home buyer desires to borrow $100,000 for 3 years with a fixed interest rate of 4.99%. The estimated payment for this individual is about $700.00 to pay off the obligation. Then again, should you make this interest only, their payment per month would decrease to only around $500. The general problem with this type of home loan is that the borrowing home owner would need to have some means of being able to pay on the capital of the mortgage loan. Otherwise, at the conclusion of the loan period they’ll still be left with exactly the same debt.
In years past, a mortgage loan lender would require that everyone applying for a loan have the ability to demonstrate that they would be able to pay their mortgage loan. Nowadays, it is simply the matter of reminding the home owner that they will need to pay off the capital. Normally, it is necessary that those considering a interest only mortgage have some type of investment, for example an ISA (independent savings account) which will go towards the capital when the mortgage terms conclude.
It is extremely essential that you thoroughly think about all your means and put a substantial amount of consideration in how you can repay the capital of the mortgage. Some people rely on home prices to increase to assist them, with reduced wages and falling values this will not provide a safe environment. This eventually could mean difficulties for the home buyer.
Thus, by now maybe you are wondering what you might do to pay this loan off. You can consider a mortgage of repayment, a part of every payment amount you make goes for the actual debt. This is more costly than the interest only mortgages; nevertheless, it will reduce the debt by actually applying payments towards it.
If you have an interest only mortgage there are a few things you may be able to do. As an example, you could have your mortgage switched into a repayment mortgage or open an ISA and begin saving every month. You may check your contract and if there aren’t any prepayment penalties, you could increase your monthly payment and the extra will be applied to the principal amount.
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Topics: Mortgages | Comments Off
MLA Style Citation:
Ankner, Scott "Interest Only Mortgage – What Is It?." Interest Only Mortgage – What Is It?. 21 Jun. 2010. uberarticles.com. 29 Dec 2014 <http://uberarticles.com/finance/mortgages/interest-only-mortgage-what-is-it/>.
APA Style Citation:
Ankner, S (2010, June 21). Interest Only Mortgage – What Is It?. Retrieved December 29, 2014, from http://uberarticles.com/finance/mortgages/interest-only-mortgage-what-is-it/
Chicago Style Citation:
Ankner, Scott "Interest Only Mortgage – What Is It?" uberarticles.com. http://uberarticles.com/finance/mortgages/interest-only-mortgage-what-is-it/
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