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Is an interest only loan right for you?

Interest only loans have had a bad reputation since 2008 — largely due to overuse and borrowers buying more than they could afford. However, this type of loan can be helpful for those who experience fluctuating salaries, such as those on commission, contractors or those who experience income that can vary from month to month. When used correctly, these loans can actually be beneficial.


What are some of the benefits of an interest only loan?

  • Easier for those who experience fluctuation in their income.
  • Lower payments than a fixed rate 30-year mortgage.
  • Smaller payments can offer some breathing room when cash flow is low.


What are some of the drawbacks of an interest only loan?

  • The principal amount is never getting paid on this type of loan.
  • Requires discipline and a plan for paying down the principal.
  • Interest only loans are usually an ARM, making the rate adjustable after the initial period.

Once the principal starts getting paid down, all future payments are adjusted based on the new, lower balance. This drops the minimum payments going forward.


January

$250,000
3.5%
$729
$0


February

$250,000
3.5%
$729
$15,000


March

$235,000
3.5%
$685
$0

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Are you ready to learn more about your loan options? Our home mortgage loan experts can help you find the best choice for you.