An interest only mortgage is a mortgage were the borrower(s) pay only the interest payments on the loan. Generally the term of an interest only mortgage is over 30 years with the interest only period either 5 or 10 years and then the loan will re-amortize into a principle and interest loan for the remaining 20 or 25 years.Interest Only mortgages are a great way to increase your cash flow. Often it is smartest to instead of throwing money at the mortgage to instead take an Interest Only mortgage. This will allow you more money each month to pay off other high interest rate debt.
You should weigh your options when considering an interest only loan. Don't hesitate to contact me to discuss your unique situation.
With most interest-only payment option loans, you can always pay extra towards the principal you owe at any time. When times are flush, pay down that principal. When times are tough, pay only the interest-only payment. You decide.
In areas with high appreciation such as 10% - 20% per year it's not necessary for a person to pay down the principle on a mortgage to reap great profits in an investment property. This is where many people use I/O loans along with Neg-Am products.
Often times lower income borrowers or first-time homebuyers will apply for an interest only mortgage. This helps reduce their monthly mortgage cost while still being able to get into a home. Investors buying investment/rental properties will apply for interest only loans reduce monthly debt on their properties while increasing their cash flow from the rental payments.
The easiest way to figure the payments on an interest only mortgage is; loan amount x interest rate percentage / 12. An example of the payments on a $150,000.00 mortgage with a 7.50% rate would be;
150,000 x 7.50% = 11250 / 12 = 937.50
Interest only payments will not reduce the principal balance of your mortgage.
Another advantage of the interest only mortgage is that most lenders allow the borrower to qualify at the interest only payment. Since this payment is lower than a fully amortized payment, the result is that the borrower can qualify for a larger mortgage, usually meaning a better or bigger house.
Interest Only loans are often utilized by those who expect their income to increase in the near future. College students who are expecting to graduate and professionals getting an advance degree can purchase the homes now which they otherwise cannot afford with their current incomes.
Having an interest only loan helps you to keep your monthly payments low. Although you do not reduce the principle balance of the loan, your house will appreciate over time, thereby building equity.
