Should I Get an Interest-Only Mortgage?

Should I get an interest-only mortgage? I get asked this question many many times. The simple answer is that it depends on your situation. For those that may not know, an interest-only mortgage is an adjustable rate mortgage (or ARM) where the borrower pays only interest on the loan for a fixed term. Normally the term is five to seven years. The longer the term will usually cause the rate to increase. When the fixed term is over the person then has the option of paying off the full amount of the mortgage, refinancing the mortgage, or to start paying off the principal. If the borrower chooses the last option, the payments of the mortgage will increase dramatically.

According to bankrate.com (an excellent source for financial information), an interest-only loan might be good for someone whose income is mostly in the form of infrequent commissions or bonuses, someone who expects to earn a lot more in a few years, or someone who truly will invest the savings on the difference between an interest-only mortgage and an amortizing mortgage, and who is confident that the investments will make money. Financial advisers don't recommend interest-only mortgages to regular wage earners who take out moderate-size home loans and don't have a strategy for investing the savings.

Interest-only mortgages can be a great option now days for select types of individuals. If you ever decide to go this route, proceed with caution and be aware of your options at the end of the term.

Amit Bhuta
Real Estate Helper
Kendall Village Homes
(305) 439-3031
www.DadeCountyMLS.com