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ANSWERS: 2
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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 either refinance, pay the balance in a lump sum, or start paying off the principal, in which case the payments jump skyward. An interest-only mortgage might be a good fit 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; -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.
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Interest only loans were the norm at the time of the Great Depression of 1929. People made interest payments on their mortgage until the final balloon payment was due. There are many more mortgage options available now. Currently about half of the mortgages written are adjustable rate or interest only. Interest only mortgages might be beneficial for people in markets where houses appreciate rapidly and the plan is to remain in the house for only a couple of years. The risk is if the house depreciates in value.
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