Interest Only

Interest only loans are loans with an initial period of time where the borrower pays only the interest of the loan while the principle balance remains unpaid. This initial period varies from lender to lender, and program to program.

Many borrowers use an interest only ARM loan program if they know they are only going to be in their property for a couple years.

30 year fixed rate interest only programs are becoming more popular. Usually many of these programs will offer an interest only payment period for the first 5 or 10 years and then will convert to a normal 25 or 20 year loan where you will make principal and interest payments. The rate will remain fixed from start to finish and will not change at all, not even when the interest only period is over.

Figuring out your monthly payments are easy on an interest-only loan. Simply take the loan amount times the interest rate (7% would be .07) and divide that by 12.

Interest Only loans are often a good choice if you are disciplined enough to take the money you save from a fully amortized payment and apply the savings to other investments such as your IRA. They are also an excellent choice for investment properties.

Interest only loans can provide a lower payment than a traditional fixed mortgage. Discuss the differences with your mortgage professional. Your mortgage broker will help you to understand which product will benefit you the most.

Be careful when using an interest only loan that you don't buy more house than you can really afford...It can be a dangerous tool if used the wrong way...

» DISCLAIMER: The information contained in this article on 'Interest Only' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.