| The borrower needs only to pay monthly payments | | | | value and the amount of debt secured by it. Since with |
| composed of interests and no capital for the first few | | | | interest only mortgage loans you don't cancel part of |
| years of the mortgage repayment program. However, | | | | the principal at the beginning of the repayment |
| these loans come with some risks that should be | | | | program, equity won't increase. |
| taken into account prior to applying. | | | | Equity is very important because you can always |
| These risks may imply that you'll end up paying | | | | resort to it when you need finance during an |
| significantly higher amounts on the long run or worst | | | | emergency. If something happens and you can't afford |
| that you may loose your property if you are unable to | | | | the monthly payments on your mortgage loan you can |
| meet the monthly payments whether it is in the first | | | | always refinance and obtain cash of your property to |
| stage of the loan repayment program or in the second | | | | get back on track. But if you chose an interest only |
| one when the monthly installments turn more onerous | | | | mortgage loan there will be no equity available and |
| due to the inclusion of the loan's principal. | | | | thus, no chances of obtaining extra cash out of your |
| Overpaying Interests | | | | property. |
| To cover for the expected losses due to a higher | | | | Greatest Risk: Variable Interest Rate |
| default rate that these kinds of loans have, the lender | | | | If you selected an interest only mortgage loan |
| will charge a higher interest rate than that of regular | | | | because you couldn't afford the monthly payments on |
| mortgage loans. This will imply that even if you get | | | | a regular mortgage loan, you should be especially |
| lower monthly payments at the beginning of the loan | | | | careful with variable interest rate mortgages. An |
| repayment program, you'll end up paying a lot more on | | | | interest rate variation can affect the monthly |
| the long run. | | | | payments on a regular mortgage with variable rate |
| Also, since you are not canceling any principal, the | | | | slightly because only part of them is interests. Yet, on |
| interests are always calculated over the whole loan | | | | Interest Only Mortgage loans it can be disastrous. |
| amount as opposed to regular mortgage loans where | | | | An increase on the interest rate on a variable rate |
| the loan's principal gets reduces every month and so | | | | interest only mortgage loan can imply a significant raise |
| do the interests on the loan. This fact alone implies | | | | on the amount of your monthly payments, and thus |
| huge savings that you are walking out on by choosing | | | | you may be unable to afford the monthly installments |
| an interest only mortgage loan. | | | | on your loan. Thus, if you choose an interest only |
| No Equity Generation | | | | mortgage loan try to make sure that you get a fixed |
| During the first years of the mortgage repayment | | | | rate mortgage or at least that you have enough |
| program, you won't be generating any equity on your | | | | available income ready in case your monthly payments |
| home. Equity is the difference between the property's | | | | increase. |