Ask Andy: interest-only mortgages - WMC Action News 5 - Memphis, Tennessee

Ask Andy: interest-only mortgages

(WMC TV) - Our mortgage sources said interest-only mortgages -- where you pay only the interest and no principal during the loan's first few years -- are making a come-back, even though they pushed a few borrowers into foreclosure a while ago. 

What's good about interest-only mortgages is they offer lower monthly payments. The payments can be 30 to 40 percent lower than traditional mortgages, according to the Wall St. Journal's

That would allow borrowers to divert the savings to other investments. On top of that, Sam Goff and Jo Garner, mortgage loan officers for Evolve Bank & Trust, said an interest-only loan enables a borrower to have a real estate asset they can sell without ever making a payment toward the loan's principal -- a great situation for someone who doesn't plan to live in the home for very long or for someone with considerable investment capital.

"It is a good option for self employed borrowers and borrowers who generally get a large year-end bonus as part of their compensation," said Garner.

But with every pro, there are also cons to interest-only mortgages.

Since they're interest-only, they typically require higher down payments.

They typically carry adjustable rates. As the rates rise, so do the monthly payments.  

Since you're not paying principal, you're not building equity, either. If home values dip, you could end up upside down on the loan.

If you're in the market for a house as an investment property, or your considering a home you don't plan to stay in for any length of time, an interest-only mortgage may be worth considering. Consult a reputable lender. 

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