Fixed Rate Interest Only Mortgage
Interest only mortgages are usually used by investors or home owners for a short period of time. They are usually used by investors to lower their repayments while they renovate a house so they can sell it for a higher price, while home owner will use the loans to direct money to other things for a while. This article will explain what fixed rate interest only loans are, who they are suited to and what the disadvantages of the loans are.
What are Interest Only Mortgages
Most providers will offer you a fixed or variable interest only mortgage. This section will explain exactly what interest only mortgages are and what a fixed rate will do to the repayments:
- Interest only mortgages. The interest only mortgages are a special type of home loan that is suited to few people. The interest only home loans require you to only pay the interest portion of the repayments, where most home loan would also require you to pay off some of the principal.
- Fixed rate. The fixed rate portion of the interest only home loan refers to how the interest will be charged to the account. On a fixed rate interest only mortgage the interest rate will not change throughout the fixed period. As you will only be paying the interest portion of the loan this means that your repayments will not increase while under the loan.
Who are Fixed Rate Interest Only Mortgages Suited to.
The fixed rate interest only mortgages are only suited to a few people. These people are:
- Investors. The main group of people who use the fixed rate interest only mortgages are investors. The fixed rate interest only mortgage allows investors to purchase a property and pay little in the way of repayments. During this time the investors will renovate the property, wait for property value to increase or both so they can make some money.
- People who would like a period of low payments. The other group of people who will use the fixed rate interest only mortgages are people who would like to free up money. The extra money may be used on renovations for the property or other purposes.
What are the Disadvantages of a Fixed Rate Interest Only Mortgage
While the fixed rate interest only mortgages have some advantages there are some quite significant disadvantages that must be mentioned. These are:
- Higher repayments at the end of the interest only period. If you are still going to be paying off the loan at the end of the fixed rate period then you will have inflated repayments. This is because you will have to pay off the loan during the agreed time but you will not have reduced any amounts that you owe.
- Lower borrowing power. The amount that you can borrow on the fixed rate interest only mortgages is calculated on the amount that you will have to repay when you are paying both the interest and the principal. Due to this, you will be limited with how much you can borrow as your repayments will be inflated during this time and will appear as a greater financial responsibility.
The fixed rate interest only mortgages are loans that enable investors and home owners to have a period of reduced repayments on their loan. However, after the interest only period is over you will have inflated repayments if you do not pay off the loan. Furthermore, you will not be able to borrow much money on these loans as the amount you can borrow is calculated from these inflated repayments.
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