Interest Only Mortgages Are They Worth The Risk?

If interest only mortgages sound enticing, keep in mind that they can also be very dangerous if you don't have a suitable repayment plan in place. This article in no way recommends that you should acquire an interest only mortgage. If you do, however, it is your responsibility to make sure you know just what you're getting into if you acquire one, and that you take the risks they present very seriously.When choosing a mortgage there can be many different things which you have to weigh up beforehand, none least is that of the overall cost. When all said and done if you cannot afford the mortgage then the whole thing tends to be a bit of a none starter.There are many ways to reduce or increase what your overall mortgage payment will be on a monthly basis. As an example, a long discounted rate will always be more expensive than a short discounted rate. This is also true for fixed rates. The longer their repayment, the more expensive they're going to be for you in the long run.To reduce monthly payments you can also change the overall term of the mortgage. If you have a repayment mortgage and you shorten the mortgage term then the monthly payments will increase. This is due mainly to the fact that the shorter you have to pay for the debt the more you will have to pay in order to completely repay it. The flip side to this is if you lengthen the term then the payments will reduce because, yes you guessed it, the longer you have to pay the lower the payments needed in order to repay the same amount.The obvious way to reduce the cost of every mortgage is to borrow less. The reasoning behind this is simple the less you borrow the less you have to repay. That said many people do not have the ability to borrow less they are invariably set on a particular property and very few of us are able to put up a greater deposit than the one we have agreed to so another solution is needed.Interest only mortgages are just what they sound like. With interest only mortgages, all you pay on a monthly basis is the interest on the principal you've borrowed. This means that your monthly payments are going to be lower, but you should also know that you're not paying back any of the money you originally Broward to buy your home. This means that your monthly payment is going to be much lower, sometimes as much as 25% less. At least on paper, this saves you a lot with your monthly expenses.However, when you acquire an interest only mortgage, your payments do not pay off any of the original principal you borrowed. In some ways, you're cheating the system with this, because your original principal is not going to go down at all. It will be outstanding for the entire time you're paying interest only. If you do this for the entire mortgage term, you will still owe the entire principal you originally borrowed at the end of that mortgage term.It is fair to say that there are some very genuine reasons to arrange an interest only mortgage one of the main ones is if you are expecting a lump sum of money in the future such as an inheritance or the maturity of an investment. In these cases it is more than fair and appropriate to arrange an interest only debt on the basis that you know were the money is coming from to repay it.However, there are some people that arrange an interest only mortgage with no means of principal repayment in sight. Some people do this because they have exhausted funds and/or are in financial difficulty, but they remain committed to the property they have; they arrange an interest only mortgage so that they can stay where they are. If this is you, then I suggest that you give yourself five years' limit on your interest only mortgage. During that time, get back on your feet financially so that you can begin to pay against the principal at the end of that time period. At the end of that five years, change your mortgage to one where principal is paid along with interest. If you don't do this, you're going to have the entire principal owed at the end of your mortgage. Therefore, it's up to you to ensure the principal will be repaid if you wish to stay in your home.In conclusion, if you really must do an interest only mortgage, do so knowing all of the disadvantages and risks that come with it. Make sure you have a plan in place whereby after a period of time, you begin to pay principal on your mortgage as well as interest. Whether you pay off the principal in one lump sum or change over to a traditional mortgage with principal payments included, you must have some plan in place if your decision to acquire an interest only mortgage is to be a wise one.
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