How does an interest only loan differ from a traditional mortgage?
When you take out a traditional mortgage, your monthly payments are a mix of principal and interest. The principal portion goes toward repaying the money you borrowed, while the interest is what the financial institution charges you for the use of their money. With an interest only loan, on the other hand, you pay only the interest each month, for a certain period of time – usually the first 5-10 years. Then, you have the remainder of your mortgage loan term to repay all the principal, plus interest. So what are the pros and cons of obtaining an interest only mortgage? PROS: • More affordable during the first few years than a conventional mortgage, because you’re only paying interest. • May allow you to buy a higher-priced home than you could otherwise afford, or to stay in a house you are having a hard time carrying with a conventional mortgage. • Allows you to spend the money you save in the first few years on other priorities. • Can be a way of investing in a rising real estate mark
