fbpx

Interest Only

Hey! What’s Today’s Rate?

Today's Rate

What’s the deal with Interest Only loans?

First, let’s focus on who may benefit from an interest only loan.

  • Investors that are focus on cash flow and equity gain
  • Homeowners that only plan on being in the home a short amount of time (less than 10 years)
  • Homeowners that have a non-traditional income that allows them to have more payment control over their mortgage.
  • Homeowners that know they will have a large pay increase and plan on using those funds to paydown the principal.
Ruben Garcia Mortgage Group - Interest Only

Here are three major advantages of Interest Only loans:

The first advantage is that the monthly payments on an interest-only mortgage are initially lower than those of a conventional loan. Why? Well because you are only paying the interests portion of the loan and no money is going towards the principal balance. In essence that allows borrowers to purchase a more expensive home with a lower mortgage payment in comparison to a fully amortized loan payment. That only works if the borrower plans to make the higher payments after the introductory period or has an exit strategy in mind. For example, some increase their income before the intro period is up. Others plan to sell the home before the loan converts. The remaining borrowers refinance to a new interest-only loan to keep the payments as low as possible.

The second advantage is that a borrower can pay off an interest-only mortgage faster than a conventional loan. Extra payments go directly toward the principal in both loans. But, in an interest-only loan, the lower principal then generates a slightly lower payment each month. In a conventional loan, it reduces the principal, but the monthly payment remains the same. Borrowers can pay off the loan faster, but they don’t realize the benefit until the end of the loan period. An interest-only loan allows borrowers to realize the benefit immediately. This is a huge advantage! In other words, the more aggressively you pay down the principal portion the lower your interest only payment will be, this can be done up until the maturity of the interest only part of the loan.

The third advantage is the flexibility an interest-only loan provides. For example, borrowers can use any extra money, such as bonuses or raises, to apply toward the principal (hence the nontraditional income) That way, they don’t notice a difference in their standard of living and as explained earlier your interest only payment will decrease every time you apply money towards the principal. If they lose their jobs or have unexpected medical costs, they can go back to paying just the interest amount, this helps create flexibility and payment control. That makes an interest-only loan superior to a conventional mortgage for disciplined money managers.

$

20%

1%

4.375%

$
$

$1421

Monthly Payment

Principal & Interest $1421

Monthly Taxes $1421

Monthly HOA $1421

Monthly Insurance $1421

Want more information on interest only loans?

Contact us
Privacy Settings
We use cookies to enhance your experience while using our website. If you are using our Services via a browser you can restrict, block or remove cookies through your web browser settings. We also use content and scripts from third parties that may use tracking technologies. You can selectively provide your consent below to allow such third party embeds. For complete information about the cookies we use, data we collect and how we process them, please check our Privacy Policy
Youtube
Consent to display content from Youtube
Vimeo
Consent to display content from Vimeo
Google Maps
Consent to display content from Google
Spotify
Consent to display content from Spotify
Sound Cloud
Consent to display content from Sound

Menu

Mortgage Products

First Time Home Buyer Programs

Jumbo Mortgage Loans

Other Loan Programs