Danger of Interest Only Mortgage

The biggest potential danger that any one going in for an interest-only mortgage lies in that they may actually be tempted to borrow more than what they could realistically afford. The temptation to own a house, for example, may be so overpowering, that you may forget that interest-only mortgages are interest-only, only in name! You will have to repay the interest and the principal, over a period of time.

One comes across several ads in various media these days offering you the 'greatest homes' because 'you deserve them'. One could be easily mislead by such tempting ads. But is it the reality? Are interest-only mortgage loans so attractive? You should never forget that interest-only mortgages work on certain assumptions. For example, imagine you buy a house based on the assumption that the price of the house would remain the same even after a few years. But your assumption could go all wrong. Prices may increase and in such a scenario; you will have to pay more interest as well as principal. What if property prices come down? In this case, you will actually end up paying more than what you owe!

Another potential drawback of interest-only mortgages is the fact that interest rates are bound to vary from time to time. All over the world we are seeing a reduction in interest rates, primarily due to buoyant markets. But will it remain so? It is as fickle as the weather. What if we go through a depression? Once the interest rates rise, you will have to pay through the nose.

Young executives go in for interest-only mortgages based on the assumption that their career growth will enable them to repay the interest as well as the principal within the stipulated time period. This could be a big mistake. They would do well to remember Murphy's Law: if something can go wrong, it will go wrong.

These are only some of the dangers that could befall you while going in for an interest-only mortgage loan. You can get vast information on these types of loans through online resources. Better still: consult your personal financial advisor for further clarifications.

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