Q. What is an interest only mortgage?
A. An interest-only mortgage allows you to initially make lower payments on a home mortgage loan (subject to credit approval). Once the interest-only period ends, both the interest and principal payments are required. This differs from a traditional mortgage in that the amount of time for repaying the principal is shorter than the overall loan term.
Q. What is an interest only mortgage usually for?
A. Interest-only loans are usually used for mid to high-value, single-family primary or secondary home purchases. Eligible properties must be owner-occupied and include single family residences, townhomes, condos and multi-family 2-4-unit dwellings.
Q. Who qualifies for interest-only loans?
A. Interest-only loans require higher down payments and a lower debt to income ratio as well as excellent credit scores and verified cash reserves. These loans are often used by people who want to lock in a lower initial fixed-rate payment to free up cash for other purposes. Additional factors, such as income, employment status, property value and eligibility also apply.
Q. What are the terms?
A. The interest-only loan is offered at an initial fixed rate for three, five, seven or 10 years maximum. The loan then converts to a variable rate at the end of the initial fixed period.
Q. How do interest-only payments work?
A. During the initial loan term, only the monthly interest payment is required. After five years, for instance, the loan converts to a 25-year variable-rate loan with amortized monthly principal and interest payments due. The loan balance does not decrease with the initial interest-only payments, though additional payments can be made toward the principal during this time.
Q. Who should customers contact for more information?
A. Reach out to one of our loan experts Monday-Friday 8:00am – 5:00pm or call our Residential Lending Office at 707.541.1490.