An interest only mortgage is a type of home loan where you will pay only the interest and doesn’t pay off the principal amount for a period and in those times; the loan balance will remain the same.

In the twenties this kind of mortgage was normal, as it worked fine, the home did not lose value and the borrower didn’t lose their job, however when the depression hit in the thirties that these plans into foreclosures, and the lenders ceased giving this type of mortgage, because they needed the mortgage loans that are repayable.

Currently interest only mortgages are offered for a period of 5 years only and at the end of the time period, the settlement is collected in full. With interest only mortgages the payment amount you make is applied to the interest only but not the principal, that is the amount you have borrowed , so at the end of the mortgage period you have to repay the entire principal amount.

In most cases, when it’s time to pay off the interest only mortgage, the original loan company will probably rewrite the mortgage, either by renewing it for an extra 5 year period, convert into a variable or fixed rate home loan. Keep in mind, the main purpose of a interest only mortgage is to allow you to purchase a home, keeping the cheapest monthly payments, enabling you to improve your cashflow to be used for improving the homes equity or additional investments. Within a few years you’ll sell the house, cashing in on the increased equity, paying off the original balance and put the profits in your pocket.

If your not trying to find a real estate project, and just intend on using a interest only mortgage to help you purchase a larger house, don’t get your hopes up. You will need to prove that you’ll have the ability to repay the mortgage at the conclusion of the term. A interest only mortgage has it place, if you try to manipulate that situation. It is likely to come back around and bite you.

Want to find out more about interest only mortgage, then visit Scott Ankner’s site on how to choose the best interest only mortgages for your needs.

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