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What
is your margin when the fixed rate period is over?
This really depends on the lender and the product
offered. Variable rate mortgages are based on a number of factors to
asses the lenders particular risk profile for the program. What does this
mean to you? It means once your initial fixed rate period is over you
will be subject to the measured index of your mortgage product plus a
pre-defined margin.
What
Index will my Interest Rate be adjusted to?
Most Interest-Only loans are tied to the LIBOR index
- LIBOR is an abbreviation for "London Interbank Offered Rate," and
is the interest rate offered by a specific group of London banks for U.S.
dollar deposits of a stated maturity - however some are also tied to the one
year CMT.
Can I
convert to a fixed rate?
Interest-Only loans do not generally have fixed rate conversion options
but product features and guidelines change daily.
Are
these Balloon Mortgages
No. Most Interest-Only loans are not balloon type
mortgages. Those that have a longer initial fixed period such as the
3,5,7 and 10 year programs will not have the note due and payable at
the end of the fixed term. The mortgage will simply turn into a fully
amortized loan thus your balance (after 5 years on a 5 year fixed interest
only loan) will be amortized over the remaining 25 years as a normal 25 year
"principal and interest" mortgage would except at an adjustable rate.
Do
Interest Only Loans have Prepayment Penalties - If so, How do they work?
Most Interest-Only loans do not have prepayment
penalties however there are certain advantages to taken a prepayment
penalty. The option will depend on your application profile and
the lender you choose but you may be able to save up to 0.25% on the
rate just by taking a prepayment penalty for the first 3 years. |
