Interest Only Variable Mortgages
Interest only variable mortgages can be an excellent choice for many borrowers. Interest only variable mortgages are designed to offer the lowest payment possible as you are not paying toward the principal in your normal monthly payment. Interest only variable mortgages may allow you to buy more home than with a fully amortizing mortgage. You may make additional payments toward your principal balance at any time. If you choose to do so, your next interest only 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.
Interest only variable mortgages 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 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 bonus is paid. However, I am seeing individuals in many situations choosing interest only variable mortgages as a method of lowering their payment, sometimes significantly.
Generally, interest only variable 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 variable mortgages or ARMs. Reduced documentation Interest only variable mortgages are readily available as well.
Again, interest only variable mortgages are not the right choice for everyone, but 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.
Of all of the products available, the Cash Flow Interest Only ARMs offers the greatest flexibility by far.