Interest Only Loans

An interest-only loan is one that gives you the option of paying just the interest or the interest and as much principal as you want in any given month during an initial period of time after your closing.

At Mortgage Planning Group, we offer a variety of interest-only home loan options, including 30-year fixed-rate mortgages and adjustable-rate mortgages. Our interest-only home loan programs are offered as interest-only loans for periods from 5 to 10 years.

For many, the most appealing feature of an interest-only loan is that you control your payment amount and your cash flow in any given month during the interest-only period, and your monthly mortgage payment will be lower than it would be with an interest plus principal payment. Your interest rate may or may not be lower than a traditional mortgage, depending on your specific situation, but you will have the option of flexible payments.

Who Is an Interest-Only Home Loan For?

On a traditional 30-year fixed-rate mortgage, roughly 70% of the payment goes toward interest during the first 5 years of the loan.

If the interest rate is low, then borrowed money is at a good rate. Instead of paying down the low rate loan, the extra money each month from making interest-only payments, and invest it in something that would provide a higher rate of return. Depending on the loan amount, there may be access to thousands of dollars over the course of several years to invest or reduce high interest debt, including credit card debt.

An interest-only home loan may also be a good option for people who expect to be in their homes for less than ten years. The average homeowner stays in their home between five and seven years. As mentioned before, home mortgage payments are mostly interest for the first years of the loan. Many homeowners like the option of making interest-only payments and using the extra money as they please - save for college tuition, make home improvements, or buy a much-needed new car.

Common Misconceptions About Interest-Only Loans

While an interest-only loan may be an appealing option to many, there are a number of common misconceptions that you should be aware of prior to making any final decisions.

One common myth is that if a person is not paying down the loan's principal, then no equity is built in the home. This is not necessarily true. Homes in the U.S. have been appreciating between 5 and 6% a year. Chances are that even if the principal is not being paid down, equity is still building in the home through appreciation.

Conditions that may accompany the use of this loan :

• Comfortable with an initial low payment that will change periodically after the fixed rate period.
• Looking to get into your home with a lower payment.
• Incomes varies monthly and want flexibility on paying down the mortgage balance.
• Additional debt that needs paid off.
• A need to increase your saving contributions for Retirement, College, a specific dream or goal.