Interest Only Loans

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Interest-only mortgages are not for everyone. These loans are particularly popular with people who plan to sell in a few years or take advantage of big appreciation gains and refinance. It also has the advantage that you can qualify for a bigger loan amount because the payments are lower on interest-only loans. You must remember that if you keep the house, the principal eventually has to be repaid.

With an interest-only mortgage loan, you pay only the interest on the mortgage in monthly payments for a fixed term. After the end of that term, usually five to seven years, you refinance, or pay the balance in a lump sum, or start paying off the principal, in which case the payments jump skyward. Then the monthly payment increases to include the amortization of the balance of the loan and the interest.