Interest Only Loans: The Benefits and Application ProcessFebruary 20, 2023 by X2 Mortgage
If it is important for you to keep your finances liquid in the first few years after you purchase a home, you can apply for a specialized loan product called an interest-only mortgage.
This is an option that many homebuyers are not familiar with, as not every mortgage company provides it.
Let’s go over what interest-only loans are and what benefits they offer. During your mortgage consult, we can help you determine whether an interest-only loan will suit your needs.
What is an Interest-Only Mortgage?
An interest-only mortgage is a mortgage with an introductory period during which you only pay interest. Once the introductory period is over, you start paying on the principal of the mortgage.
Most interest-only mortgages are adjustable rate mortgages (ARMs).
With some interest-only mortgages, you make monthly payments toward the principal once the introductory period is over. From that point onward, it is just like paying off a regular home loan.
With others, you may pay a lump sum to cover the remaining cost of the mortgage.
You could also refinance your mortgage after the introductory period is over if you discover another loan product’s features may better suit your future needs.
Benefits of Interest-Only Loans
- Keep your finances liquid. With an interest-only loan, you maintain the maximum financial flexibility in the short-term. You do not have to worry about tying up money in your home that you might need for other expenses.
- Buy more home. In some situations, an interest-only loan could be the key to affording more home.
- Improve your home. Taking out an interest-only loan might give you the financial wiggle room you need to make immediate enhancements to your home. Some of these could even have financial benefits. For example, if you make energy-efficient upgrades, they could save you money. There is a clear benefit to doing it sooner than later.
- Keep interest affordable in the short-term. Adjustable rate mortgages frequently feature low introductory interest rates among their chief benefits. As an ARM, your interest-only home loan may also have low interest during the initial years.
- Take advantage of other opportunities. Maybe you have other financial plans for the years ahead, like starting up a company or putting your money into investments. An interest-only loan may make it possible for you to pursue these plans and dreams without sacrificing moving into a new home right away.
When Should You Consider an Interest-Only Loan?
- When you have other opportunities to take advantage of. As just mentioned, interest-only loans may be ideal for entrepreneurs and investors.
- When your income is expected to increase. Perhaps you have a tight budget at the moment, but have every reason to believe that situation is temporary. You might be set to inherit a company, for example, but have opted to start at the bottom to get a fuller experience. In a few years, you could be earning a lot, but for now, an interest-only loan may be necessary for your financial health.
- When you will not be living in the home for long. When interest-only loans and other types of ARMs move past their introductory periods, the interest fluctuates with market rates. If you move out of your home before the introductory period is over, you will not need to concern yourself with your interest potentially rising.
Apply for an Interest-Only Loan
You can receive detailed answers to your questions about interest-only loans by chatting with our mortgage experts. We can also walk you rapidly through the application process for an interest-only loan.
Please call us today at (480) 992-4200 to schedule your consultation. We serve customers in Chandler and throughout Arizona.