Interest Only Loans        

With an interest only mortgage loan, the borrower takes out a 30-year mortgage, electing to pay interest only for a set period of time, such as 3, 5, 7 or 10 years. After the end of the interest only period, the monthly payments readjust to include the principal, and the loan is re-amortized for the remaining years which can cause the payment to rise substantially. At this point, most people either refinance, start paying off the principal, or sell their property. Studies have shown that homes are sold on average every 5 to 7 years. So, if you plan to sell within that period, why pay principal when the first 10 years of a mortgage payment are mostly towards interest.

An Interest Only Mortgage may be a good fit  if:

• Income is mostly from Commissions or Bonuses;
• You expect to Earn a Lot More in a few years and want to Maximize your Buying Power Now;
• You will Invest the Savings by not paying Principal on your Mortgage and put it into Higher Interest Returning Investments
• You Invest in Real Estate and want to keep your payment low and keep the property for a short time

This flexible mortgage gives people the tools necessary to manage their debts as carefully as they manage their assets. Most Americans assume it's always best to pay down their mortgages as quickly as they can. But in a lot of cases that's not always true;

Advantages of Interest Only Mortgage Loan Payments   

The advantage of an interest-only loan is that it allows a borrower to free up capital to invest in assets that yield the highest return, or serve some particular financial-planning purpose, rather than locking it up in a house. For example, you could take the money you'd be paying in principal each month and:

• Pay Down more Expensive Debt such as Credit Cards. 
• Set it aside to help pay for a Child's College Fund
• Invest it in the Stock Market over the long haul
• Invest More in your Employer's matching 401(k) Contribution Plan

In the above scenarios, you won't have paid down your mortgage at all, but your financial picture outside your mortgage will be much more robust.  Surely, there are plenty of pitfalls in not paying down your principal. For one thing, you'll be building up less equity in your home. On the other hand the amount of equity you build by paying a full payment is very minimal for the first 10 years of a 30 year fixed rate mortgage as you are paying almost 85% in interest to the bank.  You have to also consider that you most likely will be accumulating equity as the property appreciates in value over the interest only period. But if you think you live in a market where prices aren't likely to rise much, or might fall, you might want to use the option to pay down some of the principal to give yourself an extra cushion of equity. In summary, an Interest-Only Loan can save you thousands of dollars and possibly earn you thousands more with the right diversified investments over time.

Interest Only Mortgage Loan Payments are very easy to calculate. Since the borrower is not paying any principal and there is no amortization you can use simple math to calculate your monthly loan payment.

Example:

Loan Amount: $500,000
Product: 5 Year Fixed ARM Interest Only Mortgage
Rate: 5.250%

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Step 1: Calculate Total Annual Interest

Your total annual interest would be $500,000 (Loan Amount) X .0525 (Interest rate in Decimals)

= $26,250 Annual Interest Owed

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Step 2: Calculate Total Monthly Interest

Divide the annual interest by 12 (number of months in a year) to determine your monthly payment.

$26,250 (Annual Interest) divided by 12 (number of months)

                = Interest Only Payment of $2,187.50 - you Save $574.93 per month

*when compared to a principal & interest payment of $2,762.43.  

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Your New Loan will give you:

• Lower Monthly Payment

• Greater Cash Flow 

• More Purchasing Power

• Invest in Assets with Higher Returns

• Flexibility to pay principal at your convenience

 

Interest Only Loans are available on:

     Stated Income Loan  for those who cannot document or verify their income and  don't want to show 1040 Tax Returns.

     Conforming Loan - Loan amounts up to $359,650

     Jumbo Loan - Loans from $359,651 to $650,000

     Super Jumbo Loan - Loans above $650,000

 

Click here to Calculate & Compare Interest Only vs. other Loans

Pay Deferred Interest, Interest Only, or Principal & Interest on 1 and 3 month adjustable mortgages using the Option ARM. Rates as low as 1.25%

 

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Interest Only Loans are available on  1  month, 3 month,  6 month,  2 years fixed, 3 years fixed, 5 years fixed, 7 years fixed , 10 years fixed, and now a 30 year Fixed. After the interest only fixed period for the 2 Yr thru 10 Yr ARM's, the loan converts to a fully indexed rate with principal and interest due. Depending on your loan amount, some programs have as little as 0% down to $1mil or 10% down up to $2mil. After the interest only period, the loan converts to full amortization payment for the remaining term.

Certain risks are associated with any kind of adjustable rate mortgage. The information contained in this site should be used only for reference.  Before entering into an agreement with any financial institution please consult your financial planner, accountant or any other person who is familiar with your financial profile for further information.  For more information on the terms and conditions of this website and the use of information contained please visit our legal section by clicking "disclaimer" below.