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Interest Only

Interest rates are currently at historic lows, which is good news for consumers looking to finance a home. Today’s current low-rate environment may have you thinking about different types of mortgage loans. Which enable you to pay the least amount in interest. While an interest-only mortgage may seem to fit the bill. There’s actually more to this financing option than meets the eye.
interest only

What Is An Interest-Only Mortgage?

Those with an interest-only mortgage only pay the interest on the loan for a set period of time, typically the first 5 – 10 years of the loan.
Interest-only mortgages come in two varieties: adjustable-rate and fixed-rate. Fixed-rate interest-only options are rare. Usually, interest-only mortgages come baked into some type of adjustable-rate structure.Interest-only mortgages are a type of nonconforming loans. Which means they’re hard to find and (usually) even harder to get. This is because only conforming mortgages can be insured, guaranteed and backed by Fannie Mae and Freddie Mac, which is why interest-only options aren’t widely available.
Advantages of an Interest-Only Mortgage
Interest-only mortgages can be a boon to buyers capable of making bigger payments in the future in exchange for savings in the near-term.

    • Qualify for a Bigger House. Say you are finishing medical school and want to buy a house. You’re spending almost all you have on tuition and borrowing money you don’t have, so adding a mortgage payment to the mix would be impossible. But you’re counting on a big paycheck as a surgeon after you complete your internship, so you are very confident about your financial future. Taking an interest-only loan would hold down your homebuying costs, and making the higher monthly payments in 10 years should be no problem when you make a bundle in private practice.
    • Rising Housing Prices.

This was one of the problem strategies during the housing bubble. It works if you have a lot of money in your future, like an inheritance, but can be trouble if you couldn’t afford to house you want with conventional financing now.

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