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Interest-Only Mortgages

An interest-only mortgage allows borrowers to pay only the interest on the money borrowed for a predetermined initial period. This is known as the “interest-only period” (for example, the first five years of the loan). If you only pay the amount of interest that is due, once the interest-only periods ends:

  • You will still owe the original amount you borrowed.
  • Your monthly payment will increase—even if interest rates stay the same—because you must pay back the principal as well as the interest.

While a nontraditional mortgage such as Interest-Only Mortgage loans provide flexibility for consumers, consumers may enter into these transactions without fully understanding the product terms. In addition to apprising consumers of the benefits of nontraditional mortgage products, it is the policy of 1st Mariner Mortgage to take appropriate steps to alert consumers to the risks of nontraditional mortgages, including the likelihood of increased future payment obligations.

It is important to choose home loan terms that fit your budget and your financial objectives. Here is a closer look at the pros and cons of an interest-only mortgage.

Advantages of an Interest-Only Mortgage

  • Relatively low payments for a specified period of time.

Disadvantages of an Interest-Only Mortgage

  • During the interest-only period, payments that are made do not reduce the principal amount owed on the loan.
  • After the interest-only period, your monthly payment will increase, even if interest rates stay the same.
  • Payment shock – your monthly payment may increase by a large amount once the interest-only period expires.
  • Home equity will be built at a slower pace than with traditional fully amortizing mortgage loans.

Borrowers Likely to Choose an Interest-Only Mortgage

  • Buyers who intend to own a home for a short time or who can handle high payments in the future (including, for instance, those whose incomes are expected to increase considerably by the time the monthly payments increase).
  • Anyone with sizable equity in his or her home who intends to use the money that would go toward principal payments for other investments.

Request a Free Consultation or Apply for a Mortgage Today

Find out how 1st Mariner Mortgage can help you with your residential Interest-Only Mortgage. If you are interested in a VA loan, contact our VA loan specialists to learn more today. Our representatives are ready to assist you.

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