30 Yr. Interest Only Loan

[<strong>Editors Note</strong>: Due to the mortgage crisis, 30 YR Interest Only loans have become less available. If you're in need of a 30 YR Interest Only loan <a href="http://www.denver-lender.com/contact/">contact us</a> at Denver Lender and we can discuss your mortgage needs.]

The 30 Year Interest Only Loan is an exciting, yet relatively new loan program, that can be used to plan your investment choices and real estate options. One Great way this loan can be used, is to purchase a new home, when you may still be waiting to sell your previous home. When your previous home sells, you can transfer the proceeds to pay down the principal balance on your new Interest Only Loan, and your mortgage payment will decrease accordingly!

Interest only loans are great for real estate investors. They help real estate investors maximize their cash flow. Interest only loans are also very good for people in professions that know within a certain amount of time they are going be making a considerably higher income (such as a doctor, becoming a partner at a firm, knowing you are going to be accepting a higher position within a certain time, etc…)Interest only loans also can help homeowners to maximize their own cash flow in order to invest money into retirement accounts, pay off high rate debt, start a savings account, etc…

The interest-only option can also be useful when you are consolidating credit card debt and need to keep your monthly payments to a minimum. In months when you have extra cash, make an additional payment toward principal. As you retire debt, make that extra principal payment a monthly habit!

You will continue to have the option of paying more than “interest-only.” However it is a good option to have in order to have a lower required payment when needed.

Generally the interest rate on an interest only loan is slightly higher than that of a loan that includes interest and principal.

Interest Only mortgages require payments of only the interest amount incurred in the initial few years. The most common Interest Only mortgage has a 10-year interest only feature, in which the mortgagor only needs to pay the interest accrued every month. For example, with the $200,000 loan at 6.5% fixed interest rate, the mortgagor only needs to pay $1,083 per month ($200,000 X 6.5%, divided by 12 months). After the 10-year interest only period, the loan is amortized to be paid off in the remaining 20 years.

Because the loan is re amortized to a 20 year note your payment will jump significantly compared to the 30 year amortized interest only loan.

A fixed rate interest only loan allows you to have a low interest rate and pay a low payment. Usually homeowners understand they will need to refinance in the future. This is because there interest rate will increase after the fixed period and they have had no principle reduction.

The interest only payment may also let you afford a slightly more expensive house then you could afford with a standard principal and interest payment. Ask your mortgage broker for information on interest only programs and there benefits.

The balance of the mortgage that you take out on an interest only loan will always remain the same if you pay the interest only payment. A $150,000 loan that is an interest only loan and only the interest payment is made for 5 years will still have a $150,000 balance.

Why pay interest only?

Editors Note: Due to the mortgage and credit crunch, interest only mortgages are more difficult to obtain. If you’re in need of a Denver home loan contact us to discuss your mortgage options.

Paying interest only is a great way to minimize housing expenses per month. The concept of this type of payment structure is to allow you a set amount of time in which your payments will be based off of interest only. Every borrower should keep in mind that this loan will not pay down any of the principal balance during the interest only portion of the loan.

Why pay interest only – do you think you will ever really pay off your mortgage? How do you gain equity in your home? Is it from paying down your principal or more so from the market appreciation of your home? When you consider these things paying interest only and having the extra cash flow often makes good sense.

Examine every loan option with your mortgage broker before you decide on a interest only loan program. Your mortgage broker will be able to determine if the interest only option is a good fit for you. This will ensure that you are not frustrated by an uninformed decision years down the road.

Many lenders charge a small premium in order to have interest only premiums, usually 1/8th or 1/4p point. Make sure you discuss this with your mortgage broker as well.

With an interest only loan you will still build equity in your home even if you only make the interest only payments and never apply any extra payment towards the principal. This is achieved because your house is always going to appreciate and gain value (unless you live in a community with declining home values, which is not very common). Therefore, You can still gain equity in your home while freeing up cash to pay down other bills, invest, and/or just to simply put save for a rainy day.

Many people choose interest only loans to increase their cash flow and not be encumbered by such a huge mortgage payment.

With any type of interest only loan you can choose to make additional payments to reduce your principal balance. These type of loans work very well with borrowers whose income may fluctuate on a monthly basis or borrowers who know they will be receiving a pay increase in the future and want to minimize the monthly payment until they have a larger income.

Interest Only loans allow you to purchase a larger house without increasing your monthly mortgage expense and it gives you mortgage payment flexibility to better manage your monthly cash flow without deferring interest.

Paying interest only may free up needed cash flow to help make payments on an investment property you may want to purchase.

Often times a real estate investor will want an interest only loan. The low minimum payments help to increase cash flow for other purchases.

The use of interest-only loans was unheard of just a few years ago, but in the last year these loans have exploded, giving many home buyers leverage against escalating home prices and enabling them to buy homes. A recent Wells Fargo survey of American homeowners showed that the majority of homeowners do pay principal on interest-only loans when they are flush with cash. 73% pay both the principal and interest at least some of the time. Only 25% pay only interest all of the time. Interest-only options on home loans give the home buyer the flexibility to choose how much to pay on their mortgage each month – just the interest-only payment or a little extra to pay down that principal.

Interest Only mortgages require monthly payment of “interest only” for a specified period, usually the initial 10 years of a 30 year loan term. At the end of the interest only period, the loan is re-amortized to pay off the mortgage in the remaining 20 years. The monthly payments will naturally be much higher compared to that of the interest only period. In practice, most homeowner refinance before the end of the interest only period. The disadvantage of Interest Only loans is in that the homeowner will not build equity during the interest only period. There is also the risk that the home has since lost value when it comes time to refinance.

Paying interest only may allow you to contribute to your 401k, or IRA retirement account, because of your new lower monthly payment.

Interest only loans can also be of value for borrower’s seeking to consolidate other debt carrying high interest rates like credit cards. By minimizing your mortgage payment, you can afford to pay down these other debts more quickly.