Opportunities
1. Lower Monthly Payments
The main and obvious advantage of an interest-only mortgage is its low monthly payments. This benefits buyers who are looking to buy a relatively expensive property, since an interest only loan allows you to buy a pricier house than you would be able to afford with a standard fixed-rate mortgage. Lenders calculate the amount you can borrow based on your debt-to-income ratio, and if your monthly loan payments are low, the amount you can get for a loan goes up.
2. More Control Over Where You Put Your Money
Lower monthly payments on your mortgage give you the freedom to invest some of your money elsewhere since you'll be freeing up more of your expendable cash. With an interest-only loan, the money that you don’t have to spend on large monthly mortgage payments can be used to pay other financial obligations.
Also, if you’re juggling a few goals on top of owning a home (such as putting up a business or going to graduate school), you can really benefit from the increased cash flow that is made possible by an interest-only loan.
3. Greater Flexibility with Payment Schedules
An interest-only loan allows more flexibility in terms of balloon payments. Which is a great thing, since the best way to manage an interest-only loan is to make principal payments whenever possible. For example, if you get an unexpected bonus or raise, you can choose to apply the extra money towards the principal. This way, any differences in your standard of living won't be affected. Doing this will also decrease the risk of your monthly payments shooting up to an unaffordable amount. In any case, you can easily go back to just paying the interest amount in the event of sudden medical expenses or temporary unemployment.
4. Less Pressure on First-Time Home Buyers
For first-time home buyers, an interest-only loan provides them more time to increase income before the interest-only term expires.
Since you can defer large payments into future years when you expect your income to improve, there is less pressure on paying off your mortgage for the first 5 to 10 years. Take advantage of this by shifting your focus towards growing your finances.
