Question:

Why take an interest only adjustable rate mortgage (ARM)?

Answer:

An interest only adjustable rate mortgage requires that the borrower only pays the interest on the mortgage and the principal remains unchanged for a fixed number of years. Usually, at the same time borrowers have the option to pay as much as they want towards the principal.

If your income is not stable but depends on commission or is seasonal, the interest only adjustable rate mortgage may be the most suitable mortgage to take. For example, if you are the owner of a seafood restaurant in a summer resort, summer will be your season and you could be making interest-only payments throughout the year and make a huge payment towards the principal when season is over.

Another way to benefit with interest only adjustable rate mortgage is if you are just starting your career (say, as a lawyer). In that case, you would like to purchase a real nice house, but you won't qualify under FRM. Thus, an interest only adjustable rate mortgage will let you qualify for a more expensive property early in your career.

An interest only adjustable rate mortgage will also allow you to free cash to use for higher return investments rather than have that cash locked in a monthly mortgage payment. This is a viable reason for many to choose an interest-only or an option adjustable rate mortgage.

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Common misspellings: mortage and morgage