Explanation of The Interest Only Mortgage Rate

If you have never heard of an interest only mortgage rate and do not know how this works, it is a fairly straightforward subject. With an interest only mortgage, you are simply paying the interest on your home or property with nothing going toward the principal. While this may sound strange, there are reasons that certain people do this, but you want to know the benefits and the risks before you choose this option for yourself.

Does an interest only mortgage rate fluctuate?

Typically, yes. Many of these types of loans are based on adjustable rates, or LIBOR interest rates. LIBOR stands for London InterBank Offered Rate. These rates are considered benchmarks, and used by banks all over the world.

Some interest only mortgages are based on fixed rate payments; it is important that you know how your rates will work prior to obtaining this type of loan. With and adjustable rate payment plan, your mortgage payment may change slightly every month, every few months or every year depending on the program you choose or what is made available to you by the lender.

Also, be careful not to be deceived. Most of the time, you will pay a higher interest rate on an interest only mortgage than you would on the same loan without an interest only option.

Is there any benefit to an interest only mortgage?

In certain circumstances, absolutely. Those who want to buy more house often benefit, due to the fact that the monthly mortgage payments will be lower for 5, 10 or 15 years until you have more earning power.

Those who are savvy investors can also use the additional money saved each month to invest in a diversified portfolio of common stocks, especially those investors who are younger. Be absolutely certain that if you are securing an interest only mortgage for this purpose, you will invest the money rather than spending it or it could have a severe impact on your future.

Additionally, an interest only mortgage may be a good choice for those who want to place the amount of money saved each month toward a second mortgage.

Before you choose an interest only mortgage, consider carefully if and how it will benefit you. Also be aware that unless you get a fixed-rate mortgage, your interest rates are likely to fluctuate occasionally.