Increase Cash Flow by Paying Interest Only on Your Mortgage

From time to time everyone experiences a glitch in their finances where it is difficult to make all the incoming cash meet all of the outgoing expenses. This can be particularly hard to do if you have a sudden decrease in cash or income, lose a job or have increased expenses. When you have to sit down and try to decide which bills are the only ones you can afford to pay and still have a little cash left over, it’s not easy. A mortgage payment is usually the last monthly bill that you want to let go unpaid because after a couple of times of this ‘strategy’ you will lose your home to foreclosure. Every day millions of people sit down and try to figure out a way to increase their monthly cash flow. Interest only mortgage payments can provide a solution to this problem, if used wisely.

When interest only is paid on a mortgage payment, the principal amount of the payment that would have been paid that month is deferred back into the rest of the mortgage loan balance. This type of cash flow raising strategy has advantages and disadvantages, so it’s important that a consumer understand everything about it and be sure it’s right for them before they blithely rush into it.

First, obviously the best advantage to paying only the interest portion of a mortgage payment is that it will immediately increase the cash flow of the homeowner. This is particularly true if the homeowner has owned the home for awhile and generally pays less interest on their mortgage every month than principal. The average home mortgage payment is constructed so that the homeowner pays more toward interest in the beginning years of the loan and then less in interest and more in principal in the last few years of the mortgage.

Depending on exactly how the homeowner’s loan was amortized and how long they have owned the home, paying only the interest can immediately give the homeowner a large portion of cash that they can use to pay toward other expenses that month. The second advantage to this strategy is that at least paying toward the interest on the mortgage loan will keep the homeowner from losing their home through foreclosure.

This is only true, however if the homeowner speaks with the mortgage company before hand to advise them of what they would like to do and doesn’t take advantage of this strategy too often. Most mortgage companies are quite understanding and will allow a homeowner to use this strategy once or twice per year to pay only the interest on their mortgage payments. Any more than that, however; and they become concerned.

Homeowners should thoroughly understand that any time they pay only the interest on their home mortgage payment, the amount of time remaining on their mortgage term is automatically increased unless they are able to make a larger than usual payment later on. To increase cash flow, interest only mortgage payments can be a useful technique when used wisely.