Interest-only mortgages in KC allow borrowers to pay only the accumulated interest each month for a specified period of time, usually between five and ten years. After that period of time has passed, the borrower’s minimum monthly payment will include the principal. First-time homebuyers may be intrigued by the idea of interest-only payments, but be sure to consider the following before rushing into interest-only mortgages in KC.
Financial Situations That May Benefit from Interest-Only Payments
Everyone’s financial situation is different, but often your unique needs can be met if you understand all your mortgage options. For instance, interest-only mortgages in KC could be the right choice if you:
- Have an irregular income. You need a mortgage that allows you to make minimum payments when money is tight and larger payments when you have the cash.
- Expect your income to increase in the future. This needs to be more than wishful thinking. However, if your current income is modest and you are expecting a raise, promotion, or simply planning on going back to work when your kid hits preschool, you need a mortgage you can handle until your financial situation changes.
- Wish to attain a home equity line of credit for another investment. You plan on using the borrowed money to make more money, which will help pay off the principal as your investment gains traction (i.e. flipping a house).
When to Avoid Interest-Only Mortgages
Interest-only mortgages in KC are not for everyone. You may want to consider a different mortgage option if you:
- Suffer a penalty for prepaying. Before obtaining an interest-only mortgage, discuss any and all penalties associated with the loan. A good interest-only mortgage should allow you to pay part of the principal during the initial interest-only period without suffering any penalties.
- Do not foresee your income increasing significantly in the next 10 years. Even if you think you will be able to handle the payments later on, borrowers can go into payment shock when monthly payments significantly increase. Since old habits die hard, it’s best not to get used to the extra spending money if you do not expect a significant increase in your income.
- Cannot make a sizable down payment. Low down payments negatively affect mortgage rates, regardless of whether or not they are interest-only.