Mortgage : Home Loans : Refinance : Home Equity Loans

By Louie Latour

Traditional mortgage loans come with fixed interest rates and fully amortized payments. This means you pay the same amount each month until your mortgage is paid off. Interest only mortgages are different in that they do not amortize at all during the interest only period. Here are the basics of interest only mortgages to help you decide if this type of loan is right for you.

Interest Only Mortgage Payments

Interest only mortgage loans are only interest only for a short period of time designated in your loan contract. This period typically only lasts for a few years; during the interest only period your payment amount is based solely on the interest due that month. The monthly mortgage payment when based on interest only will be significantly lower than the fully amortized payment amount.

Mortgage Conversion

When the interest only period ends, your mortgage will be converted to a traditional mortgage with an adjustable interest rate. Your payment will go up to a fully amortized amount based only on the remaining length of your loan term. If your mortgage was a 30 year loan for example, when the interest only period ends after five years your payment will be based on a 25 year amortization schedule. This means your payment amount will be significantly higher than a comparable traditional mortgage loan.

Advantages and Disadvantages

Interest only mortgage loans are useful financial tools when used correctly. If you need short term financing and understand what you

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This entry was posted on Wednesday, October 18th, 2006 at 2:28 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.