Interest Only Loans

Why You May Want One

We understand that there are times in your life when you might want to use your money for things other than your mortgage. With an interest-only mortgage, you’ll gain the advantage of a low monthly payment during the beginning of your loan term and the flexibility to pay only the interest portion on your loan.

For most homeowners, paying down mortgage debt is the most effective way to build wealth. Nonetheless, some may build wealth more rapidly by investing excess cash flow rather than paying down their mortgage. For this to succeed, their return on investment must exceed the mortgage interest rate, since that rate is what they earn when they repay their mortgage.

• An attraction of an interest only mortgage loan for many people is the lower payment. Especially for homeowners in expensive housing markets, the lower payment increases their home purchasing power.
• In some housing markets where home appreciation is great it may not be desirable to the homeowner to reduce principal. The added levels of appreciation will be sufficient to build enough equity for their next refinance.
• A big advantage with an interest only mortgage payment is flexibility. Any amount added to the interest-only payment gets directly applied to principal, allowing the homeowner more control. This approach requires discipline but is an attractive option for some homeowners.
• Also, the entire payment qualifies as tax-deductible interest during the interest only period.

Advantages

• During the interest only term your monthly payments are as low as they can possibly get.
• During the interest only term you won’t pay out cash to build equity.
• Make investments with payment difference to potentially build your net worth.
• The entire monthly payment qualifies as tax-deductible interest during the interest only period.