Interest only mortgages can be a savvy fix to a short term mortgage need. When used properly interest only mortgages can save homeowners a lot of money. Here is how to use an interest only mortgage and stay out of financial hot water.

Interest only mortgages have always been a risky proposition. This mortgage is simply a loan where the homeowner pays interest each month and does not pay any of the principal balance. Interest only mortgages have been riskier in the past because they came with adjustable interest rates; when interest rates go up you can expect your monthly payment amount to follow.

Mortgage lenders have recently started offering fixed rate interest only mortgages. This type of loan is still a risky financing option; however, the fixed interest rate offers stability from interest rate hikes. These fixed rate interest only mortgages are marketed for first time homebuyers, there are other reasons to use them.

First time homebuyers certainly can benefit from interest only payments; however, any homeowner who has seen their income drop could benefit from this loan. If you are dual income household that has lost half of your income for whatever reason, disability, death of a spouse, even loss of a job, an interest only mortgage could be used as a short-term fix to your cash flow problem.

Interest only mortgages should only be used as a temporary fix to a financial problem. Abusing this type of loan could lead to other financial problems. The downside of this mortgage is you will not build equity in your home during the interest only portion of the loan. Interest only loans with fixed rates also come with higher interest rates than adjustable rate. Using this type of mortgage will cost you money in the long run; this is why it is only a viable short-term fix.

Make sure the interest only mortgage you select does not have a prepayment penalty. If your mortgage does have this fee it could be a barrier to refinancing when you are ready to find a new mortgage. To learn more about savvy ways to save money on your mortgage, register for a free mortgage guidebook.