Interest Only Loans

These days, as people scramble for new and more creative ways to finance buying a home, the interest-only loan type mortgage is becoming more common and well known. An interest-only loan is one in which you have the option of paying only the interest (or just the interest and a portion of the principal) each month in the early years of the mortgage loan. interest-only loan periods may be applied to adjustable rate mortgages, or 30 year fixed rate mortgages, depending on the lender. In a traditional mortgage, each month your mortgage payment is divided in two parts: one part is paid on the interest charge while the other on the principal of the loan.

The main feature of an interest-only loan is that during a specified initial period of time (usually three, five, seven or ten years) you may choose to make a payment of the interest portion of the loan only. The option is flexible in that one month you may choose to make an interest only payment, another you may choose to make an interest-plus-part-of-the-principal mortgage payment, or a full, standard monthly mortgage payment. The flexibility of an interest-only loan allows you to adjust your mortgage cost on a month by month basis, giving you more control over your monthly cash flow.

In any given month during the interest-only period, you have the flexibility to pay as much or as little on your mortgage as you desire. An interest-only loan are not for everyone, but they can be a valuable financial tool that can help you control your spending and give your investment power some added oomph. Don't rush blindly into an interest only mortgage, instead speak to a financial expert or loan officer about whether an interest-only loan may be right for you.

Back to Articles