What Is An Interest Only Mortgage?
Interest Only loans provide a lower cost mortgage, since you only are obligated to pay interest each month. The plus side is that you have a lower payment since each monthly payment pays interest only. Hence, the name Interest Only. But the down side is that principal reduction of your mortgage does not occur automatically each month. That is, unless you pay an extra amount on top of the required mortgage payment. By design, mortgage loans require principal repayment in addition to interest repayment to the lender. Interst Only loans, however, only require the interest to paid rather than any principal.
Interest Only loans, therefore, are designed to give a homeowner a lower payment. They are not intended to stretch affordability or allow a buyer to buy a larger home, since underwriting still measures repayment capacity of the borrower to repay both principal and interest. These loans are simply designed to provide the option of a lower, interest only payment should a borrower feel that is the optimal choice for his or her current financial position.
These loans have a bit more complexity, so please contact us today to learn more about the details of Interest Only loans.
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