Interest Only Mortgage Loan Buying Information

With an interest only mortgage loan, the borrower takes out a 30-year mortgage, electing to pay interest only for a set period of time, such as 3, 5, 7 or 10 years. After the end of the interest only period, the monthly payments readjust to include the principal, and the loan is re-amortized for the remaining years which can cause the payment to rise substantially. At this point, most people either refinance, start paying off the principal, or sell their property. Studies have shown that homes are sold on average every 5 to 7 years. So, if you plan to sell within that period, why pay principal when the first 10 years of a mortgage payment are mostly towards interest.

An Interest Only Mortgage may be a good fit if:

Income is mostly from Commissions or Bonuses;
You expect to Earn a Lot More in a few years and want to Maximize your Buying Power Now;
You will Invest the Savings by not paying Principal on your Mortgage and put it into Higher Interest Returning Investments
You Invest in Real Estate and want to keep your payment low and keep the property for a short time

This flexible mortgage gives people the tools necessary to manage their debts as carefully as they manage their assets. Most Americans assume it's always best to pay down their mortgages as quickly as they can. But in a lot of cases that's not always true;

Advantages of Interest Only Mortgage Loan Payments

The advantage of an interest-only loan is that it allows a borrower to free up capital to invest in assets that yield the highest return, or serve some particular financial-planning purpose, rather than locking it up in a house. For example, you could take the money you'd be paying in principal each month and:

Pay Down more Expensive Debt such as Credit Cards.
Set it aside to help pay for a Child's College Fund
Invest it in the Stock Market over the long haul
Invest More in your Employer's matching 401(k) Contribution Plan

In the above scenarios, you won't have paid down your mortgage at all, but your financial picture outside your mortgage will be much more robust. Surely, there are plenty of pitfalls in not paying down your principal. For one thing, you'll be building up less equity in your home. On the other hand the amount of equity you build by paying a full payment is very minimal for the first 10 years of a 30 year fixed rate mortgage as you are paying almost 85% in interest to the bank. You have to also consider that you most likely will be accumulating equity as the property appreciates in value over the interest only period. But if you think you live in a market where prices aren't likely to rise much, or might fall, you might want to use the option to pay down some of the principal to give yourself an extra cushion of equity. In summary, an Interest-Only Loan can save you thousands of dollars and possibly earn you thousands more with the right diversified investments over time.

Interest Only Mortgage Loan Payments are very easy to calculate. Since the borrower is not paying any principal and there is no amortization you can use simple math to calculate your monthly loan payment.

Example:

Loan Amount: $500,000
Product: 5 Year Fixed ARM Interest Only Mortgage
Rate: 5.250%

Home Loans Unlimited, Incorporated - 2006