There are many common misperceptions about interest only home loans and home loan rates in general. The first one many people have is that people believe all they will ever do is pay interest and never pay off the principal of their mortgage. This is not true; an interest only home loan can best be described as a mortgage that allows the borrower to pay only the interest of the loan for a specified period of time typically during the first 2 to 10 years of the loan.
You may be wondering why anybody would want to pay interest for up to one third of the loan’s lifetime. Well believe it or not doing it this way actually makes the home more affordable as you are excluded to pay the amount of monthly payment that makes up the principal of the home loan, therefore lowering the total payment. Also paying the interest early gives you some leverage as why pay down the mortgage at 6% when a portion of that payment could be invested somewhere else with a higher return?
The interest only mortgage seems to be very popular with those who are house buying for the first time. Recent research showed that the amount of first time buyers taking out an interest only mortgage rose to 18%. The mortgage could be popular because the rates of interest are usually a lot lower than a repayment mortgage. Due to this it is the only type of mortgage that many starting out to buy can afford.
However while low rates of interest are a good thing the down side is that when the term of the mortgage comes to an end you will still owe the same amount of money that you started out owing. If you do not have a means of paying this then of course you would have to take out another loan.
Lenders have perhaps become a little slack with this type of loan because years ago you would have to be able to prove to them that you had means of repaying the capitol at the end of the mortgage. Today you can take out an interest only mortgage and having to find the capitol is only mentioned on the bottom of the mortgage agreement.
Ideally those taking out this type of mortgage should have some form of investment that they are able to fall back on and so use it to repay the capitol of the loan. While the interest only mortgage does give the cheapest rates of interest over the long term it is one of the dearest types of mortgage.
If you want to check out the rates of interest that come with interest only mortgages then go with a specialist website. You can get several quotes together on one page which makes comparing quotes easy and quick. You also have to take into account the small print of any loan you are considering as this is where you can find the added costs. Costs such as set up fees can vary widely from lender to lender so it is worthwhile choosing a mortgage with low costs or costs that have been waivered. The small print can include valuation fees and a lump sum payment if you should want to switch mortgages within a certain time frame of taking out the mortgage.