Choosing the best loan
Amortizing vs. interest-only mortgages
To keep monthly payments as low as possible, some lenders offer interest-only mortgages. These loans typically do not require any prinicpal payments for a set period of time. Typical interest-only time periods are 5, 7, and 10 years.
- Advantages and disadvantages: Since you are not paying off any principal, your monthly mortgage payment will be lower. The downside is that you are not building equity by paying down the loan. Also, depending on the loan structure, you may face a very significant payment increase once the loan begins to amortize (the time your payments must be sufficient to cover both principal and interest).
