When applying for a mortgage loan for your home, you may be able to choose between a standard loan and an interest-only loan. With an interest-only loan, you will pay only on the interest when you make your monthly payments, although you will eventually be called upon to pay the principal. It is a wise financial decision to compare interest only loans with standard loans before deciding which is best for you.
If you wanted to borrow $250,000 for the purchase of your home, you might be offered a standard loan with a five percent interest rate or an interest only loan with a 4.750 percent interest rate, with both loans having a 30-year term. With an interest-only loan, your monthly payment would be $989.58, while the payment for a standard loan would be $1,334.23. Under this plan, the total interest only cost would be $356,250, while the total standard loan cost would be $480,321.61.
DISCLAIMER: There is NO WARRANTY, expressed or implied, for the accuracy of this information or it’s applicability to your financial situation. Please consult your own financial advisor.