Many of you look for interest free real estate loans while searching for a suitable mortgage for buying a house for the first time. However, interest free real estate loans don’t exist in reality. What you can do is take out an interest only mortgage and make only the interest payments for a certain period of time. Read on to know about interest only real estate loans along with making yourself aware of the advantages and disadvantages of taking out such loans for purchasing a property.

Interest only real estate loans – What they mean

It can be said that an interest-only mortgage loan is not a home loan in the ideal sense. Interest-only mortgage can be considered to be a loan feature instead of a mortgage type. For example, you can take out a 30-year ARM (Adjustable Rate Mortgage) with a 10-year interest only feature. If you take out such a loan, then you can make only the interest payments for 10 years. However, you may make extra payments towards reducing the principal amount as and when your financial condition permits you to do so. As soon as the interest only period ends, you need to make payments towards the principal as well as the interest so as to fully amortize the loan.

Interest only mortgage loan – Its advantages

An interest only mortgage is advantageous to a borrower in many ways. The advantages are discussed below.

1. Utilize the saved amount for other purposes – The money you save during the interest only period can be utilized for other purposes such as, paying off high interest credit card bills.

2. Buy a property with comparatively higher price – Interest only real estate loans help you in buying a relatively high priced property.

3. Invest the amount for higher returns – A practiced investor can invest the saved amount in stocks that can yield higher returns in future. It may also help the borrower to pay off the home loan.

Interest only mortgage loan – Its disadvantages

Though interest only real estate loans offer several advantages, yet they are not without any disadvantages that are given below.

1. May be difficult to afford payments later – It may be difficult for a borrower to afford mortgage payments (including the principal) when the interest only period ends.

2. Interest rate may increase in case of an ARM – If the interest rates on an ARM increases, then it may be difficult for the borrower to pay off the mortgage loan.

So, it is advisable that you analyze your financial condition before taking out interest only real estate loans. While taking out a loan with an interest only payment option, make sure that you’d be able to repay the loan within the stipulated loan term.