Interest Only Mortgage Choices
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Interest only mortgage loan programs provide the same features as fixed and variable rate programs, and they additionally offer a lower payment option. With an interest only loan payment option, you pay only the interest portion of the payment but no principal.
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| Interest Only Programs |
- Several payment options
- Lower monthly payments
- Option to pay the full principal and interest payment
- Interest only payments for 5 -15 years
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- Higher rates
- Principal loan balance will not decrease during the interest only payment period
- Payment will be higher for the remaining term
- Must qualify at the fully-amortized payment of the interest-only rate
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| An interest only loan can be more expensive compared to a fully amortized loan. Many lenders usually add an additional 1/4% - 5/8% TO THE RATE for the interest only option, but the payment is still less than a fully-amortized loan.
Since the mortgage payment is interest-only, all of the payment except homeowner's insurance is usually tax-deductible (although you need to discuss this tax facet with your accountant). You may add principal at any time to your payment, which will result in a lower monthly payment for the remaining interest-only period. Since your principal balance doesn't decrease over a 5 - 15 year interest-only period, your equity in the property will not increase, except as markeet values increase.
An interest only mortgage loan is not necessarily the same as a Pay Option ARM loan. But in the case of both an interest only loan and a Pay Option ARM loan, there is an assumption that the value of the property will increase every year.
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