When it comes to owning a house, it is exciting and overwhelming at the same time to see multiple mortgage options. While many mortgage options are available in the market, the interest-only mortgage is the most suitable one for those looking forward to flexibility in repaying their home loans.
Wondering what an interest-only mortgage is? Well, let’s begin with our short guide to help you understand what these mortgages are, their benefits, and whether it is a good idea to opt for them.
What is an Interest-only Mortgage?
As understood by the name, the interest-only name is what allows the loan takers to pay back the interest on their loan under the duration specified by the mortgage company. In the specified time, the loan taker is not supposed to repay the amount he/she borrowed. This is ideal because your monthly payments are less than those of a traditional mortgage method. In the traditional mortgage method, the loan taker must pay the main loan’s interest and portion every month.
Who are the Candidates Suitable for Interest-only mortgages?
While an interest-only mortgage in Dubai for expats is a good option, the following type of candidates can benefit better.
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Buyers with no confirmed Income Streams
Mortgage companies in Dubai offer interest-only mortgage options to every candidate, but those with income streams such as freelancing must opt for it. At times of low income, they are likely to manage their paybacks more easily by covering the interest only.
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Those Who Invest in Properties
Investors can also be those who benefit the right way from interest-only mortgages. If they plan to resell the property before the interest term ends, then it is the right option. Selling can get them hold of profits before the repaying phase of the actual loan payment begins.
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Short Term Owners
People planning to live in the property for a short time are also suitable candidates for this type of mortgage. This option enables them to pay easy monthly payments and sell the property before the repayment of the loan begins.
Pros & Cons of Interest-Only Mortgages
Pros:
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Lower Initial Payments
In an interest-only mortgage, the payments in the initial phase are lower, making the amount left in hand for other essential purposes.
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Flexibility
The flexibility in the interest only phase provides an opportunity for the loan takers to manage their cash efficiently.
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Opportunity To Invest
For higher returns, investors can use interest-only mortgage options to invest in bigger and better products.
Cons:
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Bigger Payment Later
At the end of interest only payments, the loan takers have to pay bigger chunks, making them feel burdened.
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Potential Negative Equity
If, in the interest only period, the value of property goes down, the loan takers might find themselves owning more than the property cost.
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Rist of Not Building Equity
Since no actual payments are made in the interest-only period, the homebuyers might find themselves not building any equity.
Is Interest-Only Mortgage the Right Choice for You?
This question is critical. However, only you can make a perfect decision. Assess your financial condition, risk-bearing ability, and other essentials, and only then consider opting for an interest-only mortgage.
