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PMI and Interest Only Mortgages

Interest only mortgages can be an excellent choice for some borrowers. They are designed to offer the lowest payment possible as you are not paying anything toward the principal in your normal monthly payment. Because of the lower payment, interest only mortgages 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. All of the usual PMI avoidance strategies will work with interest only mortgages and there are several interest only mortgages that do not require PMI

Interest only mortgages 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 interest only mortgages. 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 interest only mortgages 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 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 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:
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, 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 programs available, the Cash Flow ARM offers the greatest flexibility by far.

The new Asset Manager is a creative product which gives you significantly lower payments and build equity faster.