Interest-only mortgage loans are a type of financial tool that many homeowners use to restructure debt obligations into a more manageable format. In some cases, this approach is helpful when it comes to restructuring both secured and unsecured debt into one simple monthly payment, rather than continuing to juggle several different debts. When choosing the best interest-only mortgage loan, there are a few key factors to consider: rate, terms, and duration.
As with any type of loan, attempting to lock in the best rate is key when evaluating various interest-only mortgage loans. Depending on the status of your credit score and the amount of debt you already have in place, you may or may not have access to the best rates in town. The trick is to compare rates with several different lenders, since there is a good chance that at least one or two will offer rates that stand out from the rest.
Keep in mind that the duration of the loan will also have some impact on the type of interest you can reasonably expect to receive with any interest-only mortgage loans. Loans with a longer duration represent a greater risk to lenders, since borrowers have more time to default. As a result, interest rates on loans with a longer repayment period are likely to be a little higher. If you can afford to focus on interest-only mortgage loans that have a shorter duration, the chances of locking in a lower rate are improved significantly.
Along with interest rates, make sure you understand all the provisions and terms that are found in the contracts related to the interest-only mortgage loans under consideration. Take the time to compare any additional fees or charges that are included in those terms. Also make it a point to read the terms carefully, noting any circumstances that would allow the lender to increase the interest rate, such as making a certain amount of late payments in a twelve-month period. This will make it easier to make sure you understand the obligation completely, and avoid the potential for failing to comply with some provision that results in adding costs to the overall debt.
Keep in mind that while interest-only mortgage loans do provide some flexibility in terms of being able to pay less at times when you are temporarily strapped for cash, the ultimate goal is to retire the balance within the terms of the loan agreement. For this reason, it is a good idea to pay extra on the principal at every possible opportunity. Doing so helps to strengthen your relationship with the lender, helps your credit rating, and generally increases the chances of being approved for loans should you need them in the future.