Interest Only (IO) Mortgage

Homeowners have an interesting type of mortgage loan available called an Interest Only Mortgage. This type of loan offers many of the same features that are associated with fixed and variable interest options. What makes this type of loan unique is that you only pay the interest that accrues and the principal loan amount is never touched.

Some of the benefits of the interest only mortgage include:

• The money saved from your interest only mortgage can help to earn you more money. While a mortgage may run 5-7% after it has been taxed, an employer can contribute up to 100% of your submitted amount to a 401(k), thus giving you a bigger return on investment. This makes the 401(k) you best solution.
• With the funding saved from your interest only mortgage, you can pay off credit cards that are accruing higher levels of interest.
• This type of mortgage option actually allows you to live in a better home than you could normally qualify for. That means the home of your dreams becomes affordable since you only have to pay the interest on it.
• Any interest only mortgage will allow you to pay on the principle anytime you wish.

That means you actually have an affordable solution with the interest only mortgage. While there is a misconception that all you are ever allowed to pay is the interest, you can gradually still pay off the principal during the loan term and start saving even more off your required monthly payments.

At the end of your mortgage term, you will need to decide if you want to continue moving forward, or if you want to extend the period of the interest only mortgage. This means that you would continue only paying the interest for another term. You may of course continue to pay off your loan principal anytime. This is also of course depending on your bank regulations.

If you have failed to pay on any principal during the time of the loan, your monthly payments could go up dramatically at the end of the loan. Whenever possible it is essential that you make reasonable attempts to pay the additional amounts to avoid having payments that could increase by more than $200 a month.

In addition to that, the longer the term you choose interest only will directly impact your overall loan as well. The difference between a five year option and a ten year option can be significant for example. On a $360,000 option you might pay $1,000 with your interest only mortgage. In five years you would pay $1,200 if the option ended, and in ten years you would have to pay $1,500. When you consider the term of this benefit, also see what your payment could potentially be when it ends.

Before you take out any mortgage or option you must research and understand what you are getting yourself into. Consult with a financial advisor or broker to help you make the best educated decision possible. An interest only mortgage is a great option as long as you fully understand it.

RHMC combines the expertise and comprehensive array of mortgage products offered by large national banks with a culture that prioritizes unparalleled personal service. We are large enough to offer any product our clients could imagine, yet small enough to maintain the personal touch our clients expect.

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