Interest-Only loans are loans where the borrower only pays the interest charges.
A borrower-friendly guide to interest only mortgage loan rates
Mortgages can be difficult to understand if you aren’t a financial expert or work within the industry. But an interest-only mortgage loan is actually a pretty simple concept. Interest-only home loans are those mortgage products where the borrower only pays the interest charges for a period of time.
This type of loan was very popular in the early 2000s. When the housing bubble burst and Great Recession hit, there was a decline in approvals for this type of mortgage. However, many lenders are now offering them once again. Let us help you secure an interest-only mortgage loan rate.
Interest-only mortgage loans aren’t for every borrower. They do make sense for those with substantial but irregular incomes.
How does it work?
When you secure an interest-only mortgage loan rate, you have about five to ten years to make interest only payments at that rate. After that introductory period, you will begin making payments toward the loan principle. At that point, you could refinance into another interest-only mortgage, to continue making only interest payments.
Is it the right option for me?
If you have a high net worth, you might not want to tie up a large sum of your wealth in a home. Instead, you could be investing those funds and growing your wealth. Having an interest-only mortgage allows you to secure the home of your dreams, while maintaining the funds to grow your investment profile. Your home value will increase over time, and you can sell your home and still reap the benefits despite having made interest-only payments.
You can also benefit from an interest-only mortgage loan rate if you are a high earner, but receive irregular earnings. This is common for small business owners, sales executives, and others who earn the majority of their income from commissions or bonuses.
Interest-only mortgage rates
If you are shopping for interest-only mortgage loan rates, you should keep in mind that these types of loans do not meet the criteria for Qualified Mortgages (QMs) as set forth by the Consumer Financial Protection Bureau (CFPB). As such, these loans have an added risk for lenders, and therefore, their rates are priced higher than normal mortgage rates.
You can expect higher rates for interest-only mortgages, but in some cases that difference is only a quarter of a percentage point more than what you would pay for a full-amortizing jumbo loan.
Rates do vary from lender to lender, and depend on factors such as your credit score, down payment, financial reserves, and more. At Masihi Financial, we work with our clients to secure the best possible interest-only mortgage rate. Contact us today.