Interest-only mortgages (also known as Monthly Treasure Average loans) are very common these days among loan holders. Before choosing this type of loan, you want to educate yourself about how they work. Remember: Knowledge is power.

Interest-only mortgages rates are based on the treasuries average index. This index is one of the most reliable indexes in the market. By having your loan linked to this index, you can be fairly assured that your mortgage payments will stay very stable.

Almost all interest-only mortgages have a period of 5 years before the first payment recast. After the first 5 year period, loans have a 5 year payment recast. After the first 5 years, a computation is done to get to the needed payment to repay your mortgage in 25 years.

For example, an interest-only mortgage of $400,000 where after five years has accumulated $30,000 in negative amortization will have a new balance of $430,000 to be paid over 25 years. If your monthly payment started at 1% or $1,286 / month, in the first year and the rate was 6.75%, you will have a new payment of about $2,970.

The biggest advantage of interest-only loans is the flexibility you have because you have the chance to choose among one of four different monthly payment options. These are the four options you can choose from:

1. Minimum payment option - The minimum payment accepted by the bank. In most cases it will create deferred interests.

2. Interest only payment option - The payment is equal to the interest owed for that month. There isn't a reduction of the balance of the home loan.

3. The full principle and interest payment - This is the same monthly payment you'd make if you had a regular 30 year mortgage.

4. The 15 year amortization monthly payment option - This is the payment you would make if you wanted to pay your home in 15 years. This is the largest payment of all and the one that reduces your balance the fastest.

If you decide to make the lowest payment, some of the interest will be deferred. A deferred interest occurs when your payment is lower than the interest expense for that month.

The unpaid interest is added to the balance of the mortgage. You may pay all or part of this deferred interest whenever you want. If you are late on your payments, the total amount due will be required.

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About the author: Igor Buces is a www.miamihome loanhome.com/home loan-broker-lender-company/index.html"> Miami home loan broker working to help people get the right home loan through individualized guidance and educational articles at his Miami home loan home page.