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There are a few misconceptions about interest only mortgages because it is a different type of loan product. Using the interest only payment option on a mortgage is not necessarily a way to save money. The loan option allows for monthly cash flow flexibility, which typically has short-term benefits. There are a few other misconceptions about the loan program.
There is sometimes a misunderstanding about the interest only mortgage with respect to principal payments that are due to the lender. Some people believe the payments are never due. The fact is that lenders offer an interest only payment option, not interest only mortgages. With the interest only option, borrowers are able to make payments in the amount of the monthly interest for a specified period of time.
It is also important to understand that the interest only option is never extended throughout the life of the loan. While this option might make the monthly payments lower for a time, the payments will raise significantly at the end of the period.
Mortgages that have the interest only option do not necessarily have a fixed or a lower interest rate than a mortgage without this option. It is more likely that the interest rate will be slightly higher than a mortgage without the option. Adjusted rate mortgages as well as fixed rate mortgages may have this option available.
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