Interest Only Mortgages

Interest Only Mortgages are exactly what they state. The monthly payment made to the bank every month consists of the loan’s interest only. The amount borrowed remains at the same figure. Interest Only Mortgages have slightly higher interest rates; can have a fixed rate or adjustable rate, and some come with a balloon feature (a point in the loan term where the remaining balance is demanded in its entirety). Like ARMs, the interest only portion of the loan can be for only a short period of the term resulting in the loan to become fully amortized resulting in considerably greater payment amounts. Also like ARMs, Interest Only Mortgages allow you as a consumer to purchase more expensive homes or pay a less expensive payment during a period of temporary residence. Consumers with fluctuating income can also benefit from this type of loan. In months with leaner incomes, they are not as strapped financially and when bonuses or commissions come in, they can pay on the principle portion of the loan.

Here is an example of an Interest Only Mortgage versus a Fixed Rate Mortgage.

$200,000 @ 5.5 @ 30yrs I/O = $916/m (p&i)

$200,000 @ 5.5 @ 30yrs Fixed = $1,135 (p&i)