Offering
calculators for
mortgage interest only loan payment
options that allow borrowers to qualify for more financing because of lower payments.
There are Pros and Cons so we'll
explain when to use this adjustable rate or fixed rate home financing
tool. Interest only might or might not be the best mortgage loan for you.
Calculators use payment formula as follows:
Loan Balance x
Rate = Annual Interest amount. Annual amount divided by 12 = monthly IO
mortgage payment.
Mortgage Interest payment only loans are self explanatory.
Calculators make interest only mortgage loan payments easy to figure for a specific period of time.
The principal balance does not go down with each payment. As the name states,
only interest is applied to the mortgage loan payment. After the stated time,
from 2 to 10 years depending on the programs the
loan broker has available from
lenders, there might be a balloon
payment. At that time the entire remaining balance comes due and payable.
Alternatively, the
loan may switch to a fully amortizing mode for the remaining term. This means the payments will increase to
a constant amount that will pay off the balance over the remaining term with
regular monthly P and I payments .
Even though the rates are usually higher than fully amortizing
loans, the payments are actually quite a bit lower. This is true on both
adjustable ARM and Fixed
programs. Current IO rates are higher by usually an average of 1/4% This because the risk
factor is higher to the direct lenders. Interest only payments don't build equity which
increases the
lenders level of exposure. You may of course, pay the principal down if you wish
without penalty in monthly or lump sums.
Here's an example of an interest only
mortgage loan of $200,000 on an adjustable rate program that gives a fixed
payment rate of 5% for the first 5 years. It will have IO payments of $833 per
month for the entire 5 year period. The fully amortizing payment at the same rate and
30 year term would be $1074. After the fifth year, the loan will amortize at the fully
indexed rate , index + margin = fully indexed rate, until it is paid off. Rate caps
on the adjustable rates protect the borrower against any large or unmanageable
payment increases that could otherwise cause cash flow problems. Rate and payment caps protect you from large payment
increases, however, your monthly payment could go down if fully indexed rate is
below the base or start rate at
adjustment time.
When you get a qualified pre-approval, full
disclosure is provided on what can happen with these programs.
On Fixed Rate interest only loan
mortgage programs, the interest only payments are made for on average the first ten years
of the program. Then the remaining balance is amortized over the last twenty
years of the term. Here's how the
Interest only mortgage
calculator or math works.
$200,000 loan at 5%
IO payment = $833 per month. for 10 years.
After 10 years:
$200,000 bal. at 5% amortized for 20 years = $1320 per month.
These financing tools are not for everyone.
You'll need good credit scores for these
I.O. programs. Request a Good Faith
Disclosure, Truth in Lending disclosure and be sure to carefully consider your ownership goals and long term financial plans before
deciding on a financing program. You are the one who has to make payments and deal with the
consequences of it after it closes. There are other
tips for home buyers available too and we are
eager to counsel our clients and customers on the details and what program might
be best for their unique needs. Feel free to call with any questions you may
have.
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