Mortgages are considered to be “interest only” if your monthly payment does not cover
entire loan payment due, that is mortgage interest and a payment to decrease loan principal. Every month you are paying interest only and this means that loan is literally not going away. The purpose of setting up an interest only loan is to give customer lowest possible monthly payment while still maintaining loan.
Cannot afford full monthly payment? If you are in a position where you cannot afford full monthly payment, a lender might allow you to pay mortgage interest for first couple of years and then loan will be fully amortized at a future date. If you do get an interest only mortgage try to make interest only period as short as possible.
Make a projection: can you pay two years into loan? If you cannot get out of interest only cycle within a year or two then perhaps you are not in a financial situation where you can handle a mortgage. Another option is to get smaller home loan so that you can afford full loan payments as soon as you close escrow.
Many consumers will find that when they get preapproved for a home loan, amount might be more than what they need, or more than they can realistically afford.
Full monthly payments will be higher than if you start paying on day one Once interest only period is up and your loan is fully amortized, be prepared for some sticker shock. On average loan, sometimes one half or more of monthly payment goes towards mortgage interest, and only a fraction of actual payment goes towards paying off loan.
