INTEREST ONLY MORTGAGE

An Interest Only Mortgages is one where the borrower only has to make interest payments for a certain term; usually 3, 5, 7,or 10 years.  what comes next can be troubling in that the borrower either has to qualify for a new mortgage, or start to make payments based in the market at that time.

The upside is that it allows a borrower to qualify for a property at a lower payment because they are only obligated to pay the interest on the loan, which lowers the debt to income ration.  The challenges can come when a minimal down payment is used, followed by a reduction in house value, or income to re-qualify.  This can lead to financial challenges and currently is a contributing factor to the high rate of foreclosures.

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