Interest Only Mortgage Versus Pay Option Adjustable Rate Mortgage

When it comes to financing a home purchase, sometimes flexibility in payment options is just as important as low mortgage rates. Fixed rate and adjustable rate mortgages are certainly not your only options when it comes to home loans, so investigating some different types could help you find a way to make home ownership more affordable. Take interest only mortgages and pay option mortgages–see how these two types of home loans could be your best bet.

Interest-Only Mortgages

Interest only mortgages tend to be a bit shorter in length (5-10 years) and allow a borrower to make monthly mortgage payments that only go toward the interest accruing on the debt. The principal amount is paid out at the end of the loan term at another time specified in the mortgage agreement.

Since the final mortgage payments can be quite large, interest only mortgages are not for the average person. However, if you meet the following specifications, you might find that an interest only mortgage is perfect for you:

• Seasoned investors who want to leave their principal liquid for other investment options
• Self-employed or commission workers that have irregular pay schedules
• Those who expect to inherit a lot of money or increase income significantly in the near future

Pay Option Adjustable Rate Mortgages

Another type of mortgage is called a pay option adjustable rate mortgage. Unlike interest-only loans, a pay option ARM is a new type of mortgage option that allows borrower to choose from four different payment schedules to pay off the loan. The reason individuals may select an pay option ARM is for more flexibility in managing their cash flow and repayment.

If you choose a pay option loan, you can wither make minimum payments for 12 months, interest only payments or 30- or 15-year amortized payments. The choice is yours and pay option loans may be a viable option if you only plan on owning your home for a short time and require both flexibility and low cost as part of your monthly payment.

The array of mortgage options that are available can be overwhelming, but by taking the time to research all of your options, figuring out your long-term home ownership goals and reading all the fine print, you are sure to find a mortgage that works for you.