Interest-Only Mortgages

Potential homebuyers who receive commissions or bonuses might benefit greatly from an interest-only mortgage. Commissions or bonuses received during the year can be used to pay both the interest and principal owed during the interest-only period. While waiting for the next commission or bonus check, payments toward interest-only can be made.

Salespersons who typically earn more during certain times of the year -- for example, during the period preceeding the Christmas holiday -- might use the same payment strategy of paying interest and principal when more money is available during the interest-only period. Also, a person who is sure that he/she will receive a large sum of money in the coming years -- say, from an inheritance or some other source -- may prefer the lower interest-only mortgage payments in the interim.

Business owners may see an interest-only mortgage as a way to endure lower revenue generating periods. During these periods, additional payments toward principal can be foregone until profits increase.

Investers, too, may benefit from the payment flexibility of an interest-only mortgage. As mentioned in the previous section, paying interest-only can save hundreds per month relative to what one would pay with the same mortgage without the interest-only option attached. The amount saved per month can be put to better use by investing in lucrative investment vehicles. Investing in, for example, individual stocks or a mutual fund may yield high returns.

Updated: July 2006