Interest Only Mortgage
In the past years, interest-only loan programs have become very popular, especially in nonconforming loans. Interest-only loans are made to offer the lowest payment possible. This is achieved because the borrower is not paying anything toward principal in their monthly payment. The major advantage of these programs is a lower monthly payment.
Lenders are not concerned with only receiving interest payments on the loan as they will receive the principal when the home is sold or refinanced. Assuming your rate will not change, your monthly payment will be the same because your principal balance will remain unchanged throughout the term of the loan. The best advantage of an interest only loan is that it offers the lowest possible monthly payment. Because each payment goes toward interest, the outstanding balance of the loan does not decline with each payment.
An advantage of a interest only loan is that if you take the savings you would have and apply it to the principal balance of the loan, you will have a significantly lower principal when compared to a fully amortized loan. Because you pay down your mortgage balance faster, your monthly payments will be re-calculated based off of the principal balance which is now a lower amount resulting in even lower monthly payments.
To easily calculate your monthly payment, multiply your loan amount by your interest rate and divide by 12.
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Example...
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Interest Rate - 6% or .06
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Loan Amount - $200,000
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(200,000 * .06) / 12
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Your Monthly Payment will be exactly $1000 / month
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A word of caution, if you have little or no money down, and/or don't plan on paying anything toward the principal of the loan, this type of mortgage is not for you.
Call and speak with us today and one of our Loan Professionals can guide you toward the best loan option for your needs.
