Some lenders will offer loans that allow you to make interest-only
mortgage payments for a set number of years. These relatively
new programs are typically fixed-rate, and the term is usually
long, i.e., most take around 30 years to repay.
One of the reasons that fixed-rate mortgages are so popular is
because they offer the borrower the stability of a monthly payment
that will stay the same over the years.
However, fixed-rate mortgages, which allow borrowers to first
pay the interest, work a bit differently. Namely, the mortgage
payment will be smaller toward the beginning, and increase toward
the end. That means that you must be prepared to eventually make
larger mortgage payments.
Since mortgage payments are small for the first half of the loan,
these mortgages are a great alternative for any borrower whose
budget can’t, for whatever reason, accommodate a normal
For instance, some borrowers may want to spend a few years paying
down debts that have a higher interest rate (like credit cards).
Other borrowers might be in the process of repaying student loans.
Whatever the case, a lot of people find such programs to be very
Of course, the interest rate attached to these loans is a little
higher. That means that even though your mortgage payments will
be low in the beginning, you will ultimately pay more for your
loan than someone else who opts for a more conventional repayment
You can help make up for the increased interest by making prepayments
whenever you find that you have the have extra money. Prepayment
will help you pay back the loan faster, and help you start building
equity even in the interest-only period.