Waht is an interest-only mortgage loan? | PostIndependent.com

Waht is an interest-only mortgage loan?

An interest-only mortgage loan is one in which the monthly payment only covers the accrued interest. The principal balance remains constant and unpaid. Interest-only payments are lower than amortized payments, which include both principal and interest. These loan programs allow interest-only payments usually for a period of 3-10 years, after which time the borrower begins making principal and interest payments for the remaining term of the loan. However, during the initial payment period, the borrower can pay down the principal if desired.

An interest-only mortgage might be of interest to:

1 Borrowers that want to lower the monthly house payment for 3-10 years, knowing that the original loan amount ” the principal ” will not be reduced at all.

2 Consumers who would prefer to use the equity in their home to invest in other markets.

3 Short-term homeowners who are more concerned with payment than equity, and choose to have a lower payment over equity build up.

4 Borrowers who want a lower payment in order to qualify for a larger loan amount.

5 Self-employed borrowers who manage their cash flow monthly and want the option each month of making either an interest-only payment, or paying some on the principal.

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