"Interest Only" Mortgages
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.
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.
