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Interest Only House Loan

Interest only house loan products can be an excellent choice for some. They are designed to offer the lowest payment as you are not paying toward the principal in your  payment. Because of the lower payment, the interest only house loan may mean that you can buy more home than with a fully amortizing mortgage. Of course, you may make additional payments toward your principal balance at any time. If you do so, your next payment will be lower as the payment is based on the current loan balance. This is different than with a fully amortizing loan where any additional contributions to principal do not change the payment and are not accounted for until the end of the loan.

Interest only house loan products were originally designed for individuals whose income is cyclical. For example, an individual who is a sales executive with a relatively low base salary but commission or bonus payouts quarterly would benefit from an interest only house loan. You would have the lowest possible payment during months when no bonus is paid and you would be able to make contributions to the principal balance when the quarterly bonus is paid. However, I am seeing individuals in many situations choosing this option as a method of lowering their payment, sometimes significantly.

Generally, interest only house loan products are available for a 30 year term, with the first 5 or 10 years interest only (depending on the lender selected) and the final 20 to 25 years fully amortizing although I am now seeing some progressive lenders offering this option on Interest only house loan ARMs. Some lenders who offer an interest only mortgage require a prepayment penalty for the first 1-3 years and have caps on the amount your rate can change at any time and over the life of the loan. I always try very hard to avoid prepayment penalties on these and other types of loans and can usually work around the requirement.  Another useful feature of some interest only mortgages is that if you choose to make a principal payment during the interest only period, your balance is reduced the following month lowering your payment further.

Again, an interest only house loan is not the right choice for everyone, but it can be a very effective choice for some individuals. Please give me a call or send an email and I will be happy to discuss this alternative with you.

An example of how powerful this tool can be:
On a $250,000 mortgage at 6.000% for 30 years-
Principal and Interest payment= $1498.88
Interest Only mortgage payment at 6%= $1250.00
Total Monthly savings= $248.88

If you want to make the comparison for your own specific situation, interest only house loan calculators to find the amortizing payment are available on this website. The math to find the simple interest payment is, Loan Amount x Interest Rate / 12.

Many lenders offering interest only house loans are now basing them on the LIBOR Index. There are many variations of this important product group. Read more about Libor ARMS.

Of all of the interest only house loan programs available, the Cash Flow ARM offers the greatest flexibility by far.

I have just developed a presentation on interest only mortgages, some real world examples, and some suggestions on how to use them available by email

Read more about Interest Only House Loan Closing Costs