Understanding Interest Only Mortgages

Interest-Only Mortgages allow borrowers to make lower payments on their mortgage by offering an interest-only period (the interest-only period can be from 5 to 15 years depending on the product). As a result, borrowers may direct more of their cash flow in the first years of their mortgage to other investments or expenses. An Interest-Only Mortgage is intended for financially informed borrowers who are prepared for the increased mortgage payment when the loan converts to a fully amortizing payment. When the Interest-Only period is over the outstanding principal balance is then amortized into a principal and interest payment for the remainder of the term of the loan. Interest-Only mortgages are available in both Fixed-Rate Mortgages (such as a 30 year fixed rate) and Adjustable Rate Mortgages (ARMS). The Interest-Only Fixed-Rate Mortgage offers the borrowers the security of a fixed rate for the specified term chosen (15, 30, 40 years) with a lower monthly mortgage payment obligation in the beginning of the loan.

• A low monthly payment during the Interest-Only period means more money to invest elsewhere
• Reduce future monthly payment without penalty when principal payments are made during the interest-only period.
• Interest is paid on the outstanding principal amount, so if you make a payment against principal you will reduce your monthly payment as well as the outstanding principal balance.