Interest Only
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In the last few years, Interest Only Loans have become more popular with homeowners as well as homebuyers. An Interest Only Loan allows the borrower to make a payment that does not include principal, the borrowers also qualify based on the Interest Only payment. Interest Only Loans can save borrowers hundreds of dollars a month which can provide payment flexibility or can be the difference between qualifying and not qualifying for the loan. In most cases, Interest Only Loans aren't a particular loan product. Almost every loan type whether fixed or adjustable is available with an Interest Only option. Interest Only options are available on first mortgages, second mortgages, and home equity lines of credit. An Interest Only Loan does not create deferred interest or negative amortization. Interest Only ARMsMost Adjustable Rate Mortgages (ARMs) have an Interest Only Option. The loans types vary from 1 month LIBOR ARMs to intermediate ARMs such as the 3/1, 5/1, 7/1, or 10/1. The 5/1 Interest Only ARM is by far the most popular. The Interest Only period is usually 5-10 years on ARMs. The Interest Only Period on most Intermediate ARMs is equal to the initial fixed period. Interest Only Fixed Rate MortgagesInterest Only Options on a fixed rate loan have increased in popularity in the last year as rates have begun to rise. Since short-term rates have been rising faster than long-term rates, the savings with an ARM have been less significant. This has caused many homeowners to choose a 30 Year Fixed with an Interest Only Option instead of an Intermediate ARM. This provides the borrowers with the security of a low fixed rate and payment flexibility by creating payment options. |
