How to Get an Interest Only Mortgage
What it is
With an interest only mortgage, the borrower only pays interest on the mortgage in monthly payments for a fixed term. At the end of the term, which usually lasts from five to seven years, the borrower must refinance, pay the balance in a lump sum, or start paying the principal. These mortgages are mostly intended for affluent borrowers, including those who have income in the form of infrequent commissions or bonuses, who expect to earn a lot more in a few years, or who will invest the savings on the difference between an interest-only mortgage and an amortizing mortgage and are confident that the investments will make money.
Financial advisers do not recommend interest only mortgages to regular wage earners who take out moderate-size home loans and do not have a strategy for investing the savings. A typical interest only mortgage would have an interest rate of around seven percent and provide borrowers with a lot of flexibility. Many borrowers will be able to purchase a more expensive house.
Who it's for
Interest only mortgages are for affluent borrowers. The ideal borrower would be an executive who earns a modest salary and whose main income is from bonuses once or twice a year. The interest only mortgage provides the lowest possible monthly payment for lean months and allows the executive to pay down big chunks of principal when bonus time rolls around. Business owners with unpredictable incomes also might benefit.
What you need to do to apply
In order to obtain an interest only mortgage, interested applicants will need to contact a local lending institution and inquire about the different options and rates available. Personal and financial history, including a credit report, will need to be made available to the lending institution. A property appraisal may also be required.
