Loan Options - Interest Only Loans

Lower Payments ... Greater Purchasing Power ... It is Possible ...

Before we explain interest only financing its important to clarify these loans are not for everyone and with rising interest rates more people have these loans than probably should. The success of benefiting from this type of financing often falls into whether or not the homeowner has enough self discipline to exercise the interest only payment option only when they need to. For homeowners who believe the only way to own a home is by securing an interest only loan than you should probably look at lowering your price range. These loans were originally created for wealthy consumers - not for the average income maker.

Fact: it wasn't until 2002 that interest only loans become readily available in the mortgage industry - even though they have been around for decades.

What is an Interest Only Loan?

Unlike traditional principal and interest home loans these programs provide consumers with an option to enjoy lower "interest only" payments for defined period of the note. These programs have several advantages including Greater Purchasing Power, Payment Flexibility and Reduced Qualifying Income however they also include such disadvantages as Possible Payment Shock, Short Term Security and Larger Down Payment Requirements.

Benefits of Interest Only Financing

Fact: Interest Only Loans are not everybody however these programs do have a place in today's market, offering a number of benefits to the right homeowner

1.) Greater Purchasing Power
Interest only mortgage programs allow a consumer to use a lower qualifying payment on the mortgage application which in turn increases the maximum loan amount a lender is willing to lend.

2.) Payment Flexibility
Even with a prepayment penalty (many of these programs do not have them) it's common for mortgage lenders to allow a homeowner to prepay up to 20% of the loan's principal balance any calendar year. Of course, without a prepayment penalty you can pay more. Many consumers choose interest only loan financing because they are provided the opportunity to pay down the principal on their own time. Self employed, commission-based salespeople and consumers who receive paychecks at irregular times often appreciate this program benefit.

3.) Reduced Qualifying Income
Most lenders state that if a consumer is applying for an adjustable rate mortgage where the initial interest rate is fixed for a period of three (3) or more years than the borrower can qualify on the initial payment. If you choose an interest only loan with such terms then your lender qualifies your application on the lower payment. This varies from lender to lender so check before you apply.

4.) Choice between Fixed & Adjustable Rates
Interest only loans now make up a very large portion of mortgage loans so lenders continue to roll out new programs. With the increased popularity has also come many options including fixed rates for the entire term of the loan.