Interest Only Loans
Why go with an interest only loan?
Interest only loan programs provide the same features as fixed and variable rate programs, and they additionally offer a lower payment option. With an interest only loan payment option, you pay only the interest portion of the payment but no principal.
Advantages
- Several payment options
- Lower monthly payments
- Qualify for a higher loan amount
- Qualify at the interest only payment
- Option to pay the full principal and interest payment
- Interest only payments for up to ten years
Disadvantages
- Higher rates
- Principal loan balance will not decrease during the interest only payment period
- Payment will be higher for the remaining term
An interest only loan can be more expensive compared to a fully amortized loan. Many lenders add a fee of one-quarter point for the interest only option.
Interest only payment options allow you to qualify at the starting interest only payment. This gives you more buying power and a lower monthly payment compared to an amortized loan.
You pay interest based on your principal balance. On an interest only loan, your principal balance does not decrease, therefore, you pay more interest with this option.