Interest Only Loans - mortgagesfirst.com

Interest Only Loans
Interest only loans can be an excellent choice for some borrowers. Designed to offer the lowest payment possible as you are not paying toward the principal in your normal monthly payment. Interest only loans may mean that you can buy more home than with a fully amortizing mortgage. Of course, you may make additional payments toward your principal balance at any time.
Interest only loans were originally designed for individuals whose income is cyclical. For example, an individual who is a sales executive with a relatively low base salary but commission or bonus payouts quarterly would benefit from an interest only mortgage. You would have the lowest possible payment during months when no bonus is paid and you would be able to make contributions to the principal balance when the quarterly bonus is paid. However, we are seeing individuals in many situations choosing this option as a method of lowering their payment, sometimes significantly.
Interest only loans are available for a 30 year fixed term, with the first 5 or 10 years interest only (depending on the lender selected) and the final 20 to 25 years fully amortizing although we are now seeing some progressive lenders offering this option on ARMs. Some lenders who offer an interest only mortgage loan require a prepayment penalty for the first 1-3 years and have caps on the amount your rate can change at any time and over the life of the loan. we always try very hard to avoid prepayment penalties on these and other types of loans and can usually work around the requirement. Another useful feature of an interest only mortgage is that if you choose to make a principal payment during the interest only period, your balance is reduced the following month lowering your payment further.
Again, interest only loans are not the right choice for everyone, but they can be a very effective choice for some individuals.
An example of how powerful this tool can be:

On a $250,000 mortgage at 6.000% for 30 years-
Principal and Interest payment= $1498.88
Interest Only mortgage payment= $1250.00
Total Monthly savings= $248.88
Of all of the interest only programs available, the Option ARM interest only loans offer the greatest flexibility by far.

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