Interest Only Loans
An interest-only loan is a loan in which, for a set term, the borrower only pays the interest on the mortgage through monthly payments for a term, not the principal. With an interest-only mortgage, you pay only interest on your payments for a specific period of time (typically 5-10 years) while your principal will remain unchanged.
Interest-only loans maximize your cash flow and minimize your payments, allowing you to invest it towards other things such as renovations, retirement, or college tuition. An interest-only loan can seem like a great idea at the time - but there are plenty of risks involved in buying a property with a loan that fails to pay off any principal.
Interest-only loans are popular with property investors, as they allow you to minimize your mortgage payments in the short term, while your property value grows in the long term. Interest-only loans are ideal for covering a short-term situation. They can be useful for first-time homebuyers because it allows you to defer large payments until your income grows.
One of the most common misconceptions of an interest-only home loan is that you're not building equity in your home, which may not entirely be true. Homes in the U.S. have been appreciating around 5% each year, so there is a chance that even if you're not paying the principal amount, you're still building equity in your home through appreciation.
