Choosing an interest only mortgage option has its benefits. If rising home prices are making it difficult for you to qualify for a home loan, an interest only loan can help. Some homebuyers are unfamiliar with interest only home loans. However, they have become increasingly popular within the last six years. Before applying for such a loan, consider the following facts.

How Interest Only Mortgages Work?

With traditional mortgage financing, monthly mortgage payments are applied to both the interest and principle balance. On the other hand, if choosing an interest only option, borrowers are not obligated to make payments toward the principle. Thus, mortgage payments are lower. Because interest only payments are temporary, borrowers should anticipate higher payments within a few years. Of course, borrowers can avoid future payment shock by making occasional payments to reduce the principle. Also, limiting the interest only period to two or three years is another way to avoid the financial burden of higher mortgage payments.

Interest Only Mortgage Terms

There is a variety of interest only terms to choose between. Although it is recommended that borrowers choose short terms