An interest only loan does not mean you
will never pay principal on a home loan. These mortgage programs
simply have what's known as an interest-only payment option attached to the note. In all cases the note will state how long your
interest-only payments will last. Let's use a 5 year interest-only
loan for example.
On a typical 5 year fixed rate under an interest-only program the interest rate is fixed for the first five
(5) years of the loan term and your only obligation are interest-only payments
during this term. During the beginning of the 6th year (month 61) the unpaid balance is fully amortized over
the remaining term and the borrower is now obligated to make
principal and interest payments to the lender. Think of it
as taking a 25 year mortgage (principal & interest payments) on an adjustable rate note tied to the
then current interest rates.
the
libor index & libor rate
LIBOR (an abbreviation for "London
Interbank Offered Rate") is the interest rate offered by a specific
group of London banks for U.S. dollar deposits of a stated maturity.
The majority of interest-only loan programs are tied to the LIBOR
index rate although some lenders use the CMT (treasury) and COFI
indexes.
No, not for everybody.
Interest-only loans are generally not long term loan programs.
However interest only loans can provide a great option for many
homebuyers such as:
High Net Worth Individuals
Consumers who do not wish to tie up the equity in their home and
would prefer to invest the money into markets of better return.
Young Professionals
Consumers who are sure their income will grow but would like
greater purchasing power today. For example, young lawyers &
doctors
Short Term Home Owners
Consumers who know the time frame
for home ownership and are more concerned with lower payments
than building equity.
Real Estate Investors
Consumers purchasing investment
property find interest only loans very valuable in areas where
real estate appreciation is high.
This is not to say that an
interest-only loan may not be right for you but every program has a
certain profile of consumers that tend to show the majority of
interest. If you think an interest-only loan can benefit your
life it would be a good idea to contact a mortgage lender & consult
with your financial advisor to make the best decision for you and
your family
Fannie Mae Limits
Understand current limits for conforming loans as set annually by
Fannie Mae
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pertaining to any and all available home loan programs. Not every
applicant qualifies nor is every program always available. Interest Only
loans are simply another form of home financing and this website is purely
for educational reasons and is not an offer to loan or extend credit for
any reason.
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