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Interest-Only Mortgages Explained

October 7, 2025 by Kay Monigold

When shopping for a mortgage, you may come across an option that allows you to pay only the interest for the first several years of the loan. These are called interest-only mortgages, and while they may sound appealing at first glance, they are not the right fit for everyone. Understanding how they work and who benefits from them is key to making a smart decision.

How Interest-Only Mortgages Work
An interest-only mortgage allows borrowers to pay only the interest on their loan for an initial period, often five to ten years. During this time, monthly payments are much lower compared to a traditional mortgage. However, once the interest-only period ends, borrowers must start paying both principal and interest, which can cause payments to rise significantly.

Who May Benefit from This Option
Interest-only mortgages may be a good fit for certain types of borrowers. High-income earners who expect bonuses or commissions may prefer lower monthly payments now, knowing they can pay down the balance later. Real estate investors who plan to sell or refinance before the interest-only period ends may also find this loan attractive, as it frees up cash for other opportunities.

Risks and Considerations
While the initial affordability is tempting, the long-term risks can be significant. Since you are not reducing the principal during the interest-only phase, you will not build equity as quickly. If property values decline, you may even owe more than your home is worth. When the payment resets to include principal, it can be a shock if you are not financially prepared.

Who Should Avoid Interest-Only Mortgages
First-time buyers, families on a fixed income, or anyone who values stability in their monthly budget may want to avoid interest-only mortgages. These borrowers are often better served by a traditional fixed-rate loan that builds equity from day one and offers predictable payments.

Interest-only mortgages are a tool, but like any financial tool, they must be used wisely. If you are considering this option, weigh your financial goals carefully, think about how long you plan to stay in the home, and be honest about your ability to handle higher payments in the future.

Filed Under: Mortgage Tips Tagged With: Home Financing, Mortgage 101, Mortgage Tips

Financing Land and New Construction Homes

October 2, 2025 by Kay Monigold

Buying land or constructing a new home offers exciting opportunities for customization and investment, but the mortgage process differs from traditional home loans. Lenders often have stricter requirements for land and new construction financing, so understanding your options, planning ahead, and working closely with a mortgage professional is essential. By knowing what to expect, you can navigate this process smoothly and secure the financing needed to bring your vision to life.

Land Loans: What You Need to Know
Purchasing raw land typically requires a land loan, which differs from a standard mortgage. Lenders consider land riskier because it is not yet a livable property, which can result in higher interest rates, larger down payment requirements, and shorter loan terms. Factors such as location, zoning, and access to utilities influence loan approval and terms, so it is important to do thorough research before purchasing.

Mortgages for New Construction Homes
Financing a new build often involves a construction-to-permanent loan, which covers the cost of building your home and converts into a standard mortgage once construction is complete. This type of loan requires detailed plans, budgets, and timelines, and lenders typically disburse funds in stages as the construction progresses. Having a reliable builder and a clear financial plan is crucial to ensure the project stays on schedule and within budget.

Benefits of Financing Land and New Builds
Buying land and building a home allows you to customize your property, select your preferred location, and potentially increase long-term property value. A construction loan can also give you flexibility in managing funds and timelines, while land ownership provides opportunities for future development or investment. Proper planning and professional guidance can maximize these benefits and reduce financial stress.

Risks and Considerations
Land and construction loans carry unique risks. Construction delays, cost overruns, or changes in market conditions can impact your budget and financing. Lenders may require higher down payments and have stricter approval processes, so it is vital to maintain a strong credit profile, adequate savings, and contingency plans. Consulting with a mortgage professional can help you navigate these challenges and make informed decisions.

Making the Right Choice
Financing land purchases and new builds require careful planning, thorough research, and professional guidance. By understanding loan options, preparing financially, and working closely with lenders, homeowners and investors can successfully secure financing, build their dream property, and potentially increase long-term wealth through smart real estate decisions.

Filed Under: Mortgage Tips Tagged With: Land Loans, Mortgage Tips, New Construction

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Our Team

Kay MonigoldKay Monigold
Owner/Mortgage Broker/Residential Mortgage Loan Originator
NMLS#1086176

Steven LoweSteven P Lowe, Sr
Residential Mortgage Loan Originator
NMLS #1085638

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