Thinking of an Interest Only Loan?

We had the opportunity this week to give a presentation to a group of professionals. A financial planner asked us what we thought about interest only loans. Since not everyone in the audience was familiar we started from the basics and this is what we said:

– In an Interest Only loan you pay interest only for a specified period of time, usually 10 year, sometimes 7
– Then the balance gets amortized into regular payments
– The monthly payment is usually lower than a regular loan, even though the interest rate is slightly higher
– You can make principle payments, in which case monthly payment gets re-calculated
– It is good for people with unsteady income – they get bonuses every three months etc.- also for people starting out, want to get into a good home, know that they’ll be making good money in a year or so
Not a way to get into a more expensive house, the bill will come due
Not good if you’re not financially disciplined, with regular amortization you’re paying off the principle even though in small chunks, with interest only the principle balance stays the same throughout the first ten or so years.

Afterwards the financial planner said he was relieved to hear this from us, since he sees so many individuals get into trouble with interest only loans.

This experience only highlights what we really care about when we do business. We care about the overall financial well being of the client and nothing else – not the cheapest option for them, not the one where we make the most, but the one that makes the most sense for our client and what puts them in a position to succeed financially. With 30-50% of your income going towards your mortgage, your mortgage has the greatest bearing on your financial future.

Again, remember to visit for your entire home financing needs.

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.