Interest Only Loan Products
Interest only loan products are being developed by many lenders and can be a useful tool if they are used correctly and can be an excellent choice for some borrowers. Interest only loan products are designed to offer the lowest payment possible as you are not required to pay anything toward the principal in your payment. Because of the lower payment, interest only loan products 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 choose to do so, your next monthly payment will be lower as the payment is calculated 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.
The interest only loan product was 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 mortgage. 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 mortgages 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 Loan ARMs. Reduced documentation Interest only loan products are readily available as well.
Again, an interest only mortgage 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:
If you want to make the comparison for your own specific situation, 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 loan products 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 loan products available, the Cash Flow Interest Only Loan offers the greatest flexibility by far.
As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your debt is structured today can have a life changing effect in the years to come. Read more about this free, no obligation service.
for your interest only loan products.