Historically, interest-only mortgages have appealed more to rich borrowers. But times have changed. With increasing incomes interest-only mortgages have become appealing to borrowers of every stratum of the society and not necessarily just the upper classes. Interest-only mortgages have their own advantages. For example, you may have been dreaming about building or outright purchasing the home of your dreams. Until now you were only building castles in the air, and that was it. Then you met this friendly financial advisor who suggested that you go in for an interest-only mortgage loan.
Interest-only mortgage loans allow you to purchase a more expensive house than you might otherwise have thought was unaffordable. The ‘principal-free’ term of the mortgage could be as long as 30 years. This makes them an attractive option. If you are confident that house prices are going to remain fairly stagnant, and that you would be able to repay the interest as well the principal after a few years, than going in for an interest-only mortgage makes sense. Now this is the advantage of going in for an interest-only mortgage. On the flip side though is the fact that you are only making an assumption that the price of your house will remain static. What if real estate prices shoot up? Then you will end up paying through the sky! One need not be skeptical and pessimistic though. The advantage that interest-only mortgages offer is that they have enabled increased ‘purchase power’.
That is the reason interest-only mortgage loans were for long considered the domain of the very rich. These people could take the money and invest in other ventures from which they could make more money and have no problem repaying either the interest or the principal. But now interest-only mortgages are becoming increasingly popular among the general public x96 particularly the home-buying public.
Younger people who are starting out in a career with prospects of advancement can go in for an interest-only mortgage loan. For them an interest-only mortgage is probably a less risky option. This is again assuming that their jobs are stable and they are able to make fairly good money. What if something goes wrong? What if your ‘skill’ becomes outdated? What if your company closes shop? These are some of the questions to be answered before you go in for an interest-only mortgage. Similar is the case with people in business.
Interest-only mortgages therefore have their own pros and cons. It is advisable to consult your financial advisor and get detailed information before you decide on going in for one.
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