Mortgage Directory Articles

What is an Interest Only Mortgage?

by Gil  Mackey
Mortgage Directory Columnist

In today's mortgage market it pays to have a solid understanding of your refinance choices. While some loans may sound great on the surface, a closer look may reveal that they simply wouldn't be the best choice for you.

The Traditional Mortgage

When most of us think about a mortgage it's the traditional 30-year fixed-rate loan that comes to mind. This mortgage makes it easy to budget your monthly mortgage payments and allows you to build up equity at a reasonable pace. However, the fixed-rate mortgage has its drawbacks, too, and may not be the best refinancing choice for you. After all, it is rigid and gives you no payment flexibility.

The Interest Only Mortgage

For someone considering a mortgage refinance because they need flexibility, the interest only mortgage can be a perfect tool. The interest only mortgage does not mean you never have to make payments on the principal. It simply means that for an introductory period of time you are only obligated to make interest payments. This can free up cash flow for other investments or simply reduce your monthly mortgage payments if times are tight. After the introductory period is over, you will then be required to make both interest and principal payments. Interest-only options can be added to many fixed or adjustable rate mortgage programs.

When is the Interest Only Mortgage the Right Refinance?

If you need a temporary solution for your refinance, then you might want to take a look at the interest only mortgage. Or, if your income fluctuates drastically, let's say you only get paid on a quarterly basis, then an interest only mortgage refinance could help you get by when things are tight and allow you to pay more when you are flush.

Explore these options carefully with your mortgage lender and make sure you choose a mortgage refinance that suits your goals.

About the Author
Gil Mackey has been a writer and artist for the past twenty years. In addition to freelance writing, he writes for his local paper, and lives with his two children in Nevada.