An interest-only mortgage is a type of mortgage where the borrower is required to pay only the interest on the loan for a specified period, typically between 5 to 10 years
. During this period, the borrower does not pay any principal, which means the amount they owe on the loan does not decrease
. After the interest-only period ends, the borrower must begin paying both the interest and principal for the remainder of the loan term
. Some advantages of interest-only mortgages include:
- Lower initial monthly payments, which can be beneficial for borrowers with lower incomes or high debt
- Increased cash flow, allowing borrowers to manage their monthly payments more easily
However, there are also some disadvantages to consider:
- Borrowers do not build equity in the property during the interest-only period
- The borrower may face higher payments after the interest-only period ends
- Interest-only mortgages are considered riskier than conventional mortgages and may be harder to qualify for
It is essential for borrowers to carefully consider their financial situation and long-term goals before choosing an interest-only mortgage.
