Question:

How to handle a Fixed Rate Interest Only mortgage and do interest rates adjust?

Answer:

Fixed Rate Interest Only mortgage loans are great for homeowners. Not as popular as hybrid and pick-a-pay ARMs, fixed rate interest only mortgages have higher interest rates than strict FRMs, but allow the convenience of paying only interest for limited time - usually 5 to 15 years. After that the payment structure is adjusted to fully amortizing principal and interest payments.

Beware as the lower monthly payments one gets accustomed to with a fixed rate interest only loan may become pretty inflated once the adjustment occurs.

How to Approach a Fixed Rate Interest Only Mortgage

Refinance before the interest only period is over. Interest rates on a fixed rate interest-only mortgage are higher than rates for a conventional FRM, and it is not worth it to have an expensive fixed rate loan with a high rate.

Make payments towards the principal is one way to approach those loans. Fixed rate interest-only mortgages usually allow additional principal payment. If you can't accommodate this into your budget, don't bother. With or without principal payment, it is very likely you will want to refinance the loan before the principal becomes due.

Recommended helpful present and future homeowners links:
Why: Refinance to a fixed rate loan while mortgage rates are still low.
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Common misspellings: mortage and morgage