An interest-only loan allows you to pay only the full monthly interest due on your loan for the fixed period of the loan, which can range from 5 to 10 years. During the fixed payment period, you’re required to make only the interest payments; the principal remains unchanged. When the fixed period expires, you begin paying on the principal, too, resulting in an increased mortgage payment.
One unique characteristic of an interest-only loan is that you may elect to make either the minimum monthly payment (the interest-only portion), or, at your discretion, additional payments to be applied to principal to reduce the principal balance. Doing so will reduce your minimum monthly payment in the following month because the minimum payment will be recalculated based on the remaining loan principal.
This unique tool is very attractive to borrowers whose income ebbs and flows, as it maximizes cash flow between commissions or bonuses. When income periods are lower, only the interest payment is due. In those periods that your income surges, you can make additional payments towards your principal and lower your future IO payments.
How Low Can You Go?
Borrowers with short-term home plans who would rather increase monthly cash flow than build equity
Buyers with the intent to remodel or repair home and then quickly sell it Investors who want to free up cash flow for other investments
Borrowers confident that their monthly income will increase
Buyers with inconsistent monthly income
Most lenders will allow you to pay down the principal amount of your loan during the IO period without penalty, but some lenders may have limits on the amount of principal you can pay down during this initial period. Our loan experts at American Pacific Mortgage can help you choose the IO loan program that will best align with your principal payment plans.
An Interest-Only loan is a unique program that will offer spectacular benefits to the right borrower, but it may not be right for everyone. If paying your house off quickly is your top priority, the IO loan is not for you. Let us help you select the home loan that is perfect for your individual home goals.
*Please visit our Disclosures page for more details for all loan types.
Thomas Nguyen, NMLS #1555493, Loan Consultant, Licensed in CA
2220 Douglas blvd., Ste 220, Roseville CA 95661. Branch NMLS #1299922
Phone: (916) 521-5508 Email: Thomas.Nguyen@apmortgage.com
Licensed by the Dept. of Business Oversight under the California Residential Mortgage Lending Act. Equal Housing Opportunity
©2020 American Pacific Mortgage Corporation. All information contained herein is for informational purposes only and, while every effort has been made to ensure accuracy, no guarantee is expressed or implied. Any programs shown do not demonstrate all options or pricing structures. Rates, terms, programs and underwriting policies subject to change without notice. This is not an offer to extend credit or a commitment to lend. All loans subject to underwriting approval. Some products may not be available in all states and restrictions apply.