What is the benefit of an interest-only mortgage? Find out here!

3. You are navigating a soaring housing market

This may be a good way to purchase a property when house prices are high. You would use an interest-only mortgage to purchase a home you would be otherwise unable to buy with a conventional mortgage and sell, or flip, the property after a few years. This strategy can backfire, however, if the housing bubble bursts, so it is important to know the risks going in.

4. As an investment strategy

An interest-only mortgage may be right for you if you have a healthy stock portfolio but are reluctant to sell investments to make mortgage payments or would prefer to invest your money in equities or a retirement plan.

5. For tax deductions

Interest paid on mortgages above a certain amount ($1 million, say) are often tax deductible. If you have a substantial income and you are in a high tax bracket, an interest-only mortgage and deduction might be helpful to lowering your income tax payment. Remember, in this case, your whole mortgage payment would be tax deductible and not merely a portion of it.

6. You want to pay equity on your schedule

Usually, you will not be prohibited from making payments to lower your principal on most interest-only mortgages. It could also decrease your monthly interest payment, making it a good option if your income is variable and you are able to pay more some months.

What are the downsides of an interest-only mortgage?

On the other hand, there are downsides to interest-only mortgages. If you are unable to pay a higher monthly mortgage payment when the principal is introduced, interest-only mortgages can be risky.