Interest-Only Mortgage Definition
Answer:An interest-only mortgage is a loan that requires interest-only payments for the time being, while paying principal is postponed until some specified time. Borrowers are tempted to get an interest-only mortgage as the low payment is fixed for several years and they intend to sell or refinance until that time comes.
After the initial period of interest-only payments, the interest-only mortgage turns into conventional mortgage and principal and interest have to be paid. If borrowers didn't manage to come out of the interest-only mortgage before the fixed period expires, they may get stuck with payments they cannot afford and may face foreclosure.
Popular interest-only mortgage loans are hybrid ARMs - 3/1, 5/1, 7/1 - which are commonly used by borrowers who can't qualify for a fixed rate conventional mortgage and take exotic ARMs instead. Also, investors looking to maximize cash flow are another type of borrowers favoring interest-only mortgages.
Our advice: Be sure to ask your lender about FHA loans. FHA loans have very competitive interest rates because the loans are insured by the US Federal Government. Even if you have had serious credit problems, such as bankruptcy, it is easier to qualify for an FHA loan than a conventional loan. Also, taking an FIXED rate loan while the interest rates are still low is a smart idea. Check your eligibility here:
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Common misspellings: mortage and morgage