Interest Only Mortgage: 15 Year

Although 30 year fixed mortgages are the standard in the mortgage industry, many home buyers are going with new alternatives such as the interest only mortgage: 15 year. In days gone by, families moved into a home and often lived there for several generations. In today's upwardly mobile, fast-moving world, families often move after a few years or use their home as an investment.

Interest Only Mortgages

With an interest only mortgage your payment consists only of interest and does not pay down the principal. This means that the payments will be much lower than if your payment was being applied to both principal and interest. This can be a good option for those who are purchasing a property with the belief that the value will go up and they will be able to resell for a profit. By choosing the interest only mortgage for 15 years, the home buyer can purchase a dwelling that is in a higher price range than he might be able to afford with a traditional, fixed rate mortgage.

Unlike the Adjustable Rate Mortgages (ARMs), the interest only mortgage (15 year), does not have a payment that fluctuates from year to year. An interest only mortgage has a payment that stays the same throughout the life of the loan. With this type of loan, you never pay off your debt.

Typically, buyers must have excellent credit to qualify for an interest only mortgage for 15 years (or even longer). Those with bad credit may need to look at different options or improve their credit rating before pursuing this type of loan. The lower payments can help in times of financial stress, such as a spouse quitting work to go back to school. A couple might switch to an interest only mortgage for 15 years in order to free up money in their monthly budget to pay for school expenses. Many couples see this as a temporary measure to lower their payments and allow them to get ahead financially, work their way into better paying jobs, or pay off high interest credit cards. If the value of their home increases during the period of the loan, they can always resell the house for a profit and they've often paid far less than they would in rent.

Savings

The savings on monthly mortgage payments can be sizeable. Real Estate Blog estimates that on a $200,000 loan, an interest only mortgage with an interest rate of 4.75 percent and no principal payments due for five years, your payment will only be about $791. This is around $250 a month less than if you chose a 5 year ARM with the same interest. With this much of a savings, buyers can purchase a larger home or a home in a more upscale neighborhood than they would be able to afford otherwise.

According to the Office of Federal House Enterprise Oversight (OFHEO), the average home purchase index increased 4.3 percent over the same quarter in 2006. Homes traditionally increase in value, and this is what most interest only borrowers are banking on for resale value. Many couples stay in the home 3-6 years and then resell, pulling out the equity they've earned to pay down on the next home and so on.

Lenders Offering Interest Only Mortgage: 15 Year

There are many different types of interest only mortgages. Some of the more popular places to search for this type of loan include:

• Mortgages in Your Area
• Bank Rate
• Lending Tree
• E-Loan

You may also want to check out the mortgage comparison calculator.

After 15 Years

If you choose to continue the loan after 15 years the loan is restructured and the payments will increase as you begin to pay on the principle. Most people sell their home before this or refinance into a traditional loan.

At any time during the interest free years you can pay extra money above the payment and apply it toward the principle. Sometimes people with sporadic income will secure this type of loan. They can then have the lower monthly payments for the times when income is low and if they get a bonus check or extra income they pay it toward the principle.

Whichever type of mortgage you ultimately choose, it is good to compare rates and options and think out multiple scenarios. Although you can always refinance remember that there are costs involved in most refinancing scenarios, so try to find a lender and payment plan that will work for your family long-term.

• List of Popular Mortgage Companies
• FHA Loan Guidelines
• Amortization Table

• FHA Mortgages and Home Inspection Requirements
• Help for Single Moms to Buy a House
• Escrow
• FHA Debt to Income Guidelines
• Free Home Inspection Forms

• Everyday Lending Mortgage
• PHH Mortgage
• Mortgage Interest
• Interest Only Mortgage Brokers in MN
• Interest Only Mortgage Calculators