What are the advantages of an Interest-Only mortgage?
You can qualify for a higher loan amount. Many people just beginning their careers often want to minimize payments until their income increases and student loans are paid off. An Interest-Only mortgage increases your purchasing power.
You can take your principal payment amount and invest it in a safe side investment in order to create a safe, conservative, prudent investment strategy that provides liquidity, safety, and a realistic rate of return.
If you are buying an investment property, an Interest-Only mortgage helps to maintain a positive cash flow by minimizing debt service. Many real estate investors realize most of their profit by appreciation in value and the tax advantages of owning investment properties. Most investors are not interested in paying down the principal balance during the life of the loan.
Many borrowers whose earnings are commission based, are primarily “bonus-based”, or are self-employed with compensation fluctuation find Interest-Only mortgages a convenient alternative for managing income and mortgage payments. Additional principal payments can be applied when appropriate to either principal or side investments as the borrower chooses.
You can still build equity in your home, as valuation grows, even if you are not paying down the principal. Statistically speaking, the average homeowner refinances their house within five to seven years. On most conventional mortgages, this is the time period when the highest amount of interest is being paid. If you plan on refinancing or selling your home in the short term, then an Interest-Only loan is a great way to go.
