Question

Which mortgage is the best for the company? Are there any potential risks in this action?

Answer 1

Answer:-

Interest Only Loan is best for the company. In this type of loan, only the interest cost are to be born for a fixed period of time. Eventually after the expiry of a fixed period of time, it is required that principal cost should be paid.

Interest Only Loan has both advantages as well as disadvantages. There are some potential risks also involved.

Potential Risks involved in this type of loan are:-

1) Interest rate could be higher than on principal and interest loan. So one can end up with higher interest payments.

2) If the value of property doesnt increase in future resulting into zero equity. If there is market downturn or situations change, there will be higher burden of principal repayments