Over the past couple of year interest loans have become immensely popular due to the lower monthly payments. In some cases such as skyrocketing home prices on the east coast and west coast have forced buyers to get interest only loans just to qualify for the mortgage payment.With most interest only loans, you can pay as much over the interest only payment each month as you would like. Anything that is applied above and beyond the interest only payment each month will be applied directly towards the principle balance of your loan. Interest only loans provide borrowers with some extra flexibility with their finances each month by providing borrowers with a very low monthly payment.
A new program that is gaining in popularity is the 10/30 Interest Only mortgage. This mortgage has a interest only period of 10 years, after which it switches the a standard 30 year fully amortized mortgage. This loan combines the flexibility of low monthly payments with the security of a long term fixed rate mortgage.
Interest only loan programs are offered on fixed rate mortgages, adjustable rate mortgages, or on negative amortization mortgages. The biggest misconception is that borrowers on an interest only loan are given the option to pay "interest only" where the borrower pays only the interest portion of the monthly payment for a fixed period. At the end of that period your loan becomes fully amortized.
Choosing a loan with an interest only option will usually add .25% - .50% to the interest rate.
Consult with a licensed loan officer to determine if interest-only loan is a right loan for you. Compare the payments on the interest-only loan against other alternatives such as the loans with longer amortization periods such as 40 or 45 years.
Interest Only loans should not be confused with negative amortization mortgages, as there is no way to increase your principle balance provided you make your payments on time every month.
This difference in savings from making principle payments can be used for other things like paying off consumer debt or unforeseen expenses such as medical bills or a loss of income.
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