An interest only mortgage is a type of home loan where you will pay only the interest and doesn’t pay off the principal amount for a period and in those times; the loan balance will remain the same.

In the twenties this kind of loan was typical, since it worked fine, the home did not lose value and the borrower didn’t lose his employment, however when the depression hit in the thirties that these loans into foreclosures, and the loan companies ceased offering this sort of mortgage, because they needed the mortgage loans that are repayable.

Currently interest only mortgages are offered for a period of 5 years only and at the end of the time period, the settlement is collected in full. With interest only mortgages the payment amount you make is applied to the interest only but not the principal, that is the amount you have borrowed , so at the end of the mortgage period you have to repay the entire principal amount.

Typically, when it’s time to pay off the interest only mortgage, the original financial institution will probably rewrite the house loan, either by renewing it for an additional 5 year term, convert into a variable or fixed interest rate home loan. Keep in mind, the primary purpose of a interest only mortgage is to let you buy a home, keeping the cheapest monthly payments, allowing you to increase your cashflow to be used for improving the homes value or additional investments. In a few years you’ll sell the home, cashing in on the increased equity, settling the original balance and put the earnings in your pocket.

If your not looking for a real estate project, and simply intend on using a interest only mortgage to help you buy a larger house, don’t get your expectation up. You will need to show that you’ll have the ability to repay the mortgage at the end of the term. A interest only mortgage has it place, if you try to manipulate that situation. It is likely to come back around and bite you.

Learn more about interest only mortgage. Stop by Scott Ankner’s site where you can find out all about interest only mortgages and what it can do for you.