As a mortgage broker, you should be well informed on the various requirements and rules regarding home loan options. If a client approaches you to inquire about selling their house when they have an interest-only mortgage, you should inform them that they do have the potential to sell their home with an interest-only mortgage.
Interest-only mortgages are a type of home loan that allow a borrower to pay reduced monthly mortgage repayments for a set period of time. A borrower is allowed to make reduced monthly mortgage repayments with an interest-only mortgage agreement because the repayments made during the interest-only period are allocated to the loan’s amount of interest rather than its principal amount. When the interest-only mortgage terms end the home loan will then revert back to a principal and interest home loan if the borrower does not inquire about extending the loan terms with their mortgage broker or refinance with a new broker.
Potential borrowers who are struggling to manage their personal debt repayments or cannot afford to make the full monthly mortgage repayments can benefit greatly from having an interest-only mortgage agreement with their mortgage broker.
However, there are various disadvantages that a borrower can face with an interest-only mortgage, including the following examples:
- Difficulty building equity in their home due to mortgage repayments being allocated to the loans interest rather than its principal amount
- The potential of paying an increased amount over the life of the loan due to high interest rates
- Being required to pay a significant increase in monthly mortgage repayments when the interest-only period has ended