INTEREST ONLY
Pay Just The Interest For a Preset Period of Time
What is an Interest Only Loan?
An interest only loan allows you to pay only the full monthly interest due on your loan for the fixed period of the loan, which can range from 5 to 10 years. During the fixed payment period, you’re required to make only the interest payments; the principal remains unchanged. When the fixed period expires, you begin paying on the principal, too, resulting in an increased mortgage payment.
One unique characteristic of an interest-only loan is that you may elect to make either the minimum monthly payment (the interest-only portion), or, at your discretion, additional payments to be applied to principal to reduce the principal balance. Doing so will reduce your minimum monthly payment in the following month, because the minimum payment will be recalculated based on the remaining loan principal.
This unique tool is very attractive to borrowers whose income ebbs and flows, as it maximizes cash flow between commissions or bonuses. When income periods are lower, only the interest payment is due. In those periods that your income surges, you can make additional payments towards your principal and lower your future IO payments.
How low can you go?
Interest only loan are a great option if you are this kind of buyer:
Borrowers with short-term home plans who would rather increase monthly cash flow than build equity
Buyers with the intent to remodel or repair a home and then quickly sell it Investors who want to free up cash flow for other investments
Borrowers confident that their monthly income will increase
Buyers with inconsistent monthly income
We’re here to help.
Most lenders will allow you to pay down the principal amount of your loan during the IO period without penalty, but some lenders may have limits on the amount of principal you can pay down during this initial period.
Our loan experts at American Pacific Mortgage can help you choose the IO loan program that will best align with your principal payment plans. An Interest Only loan is a unique program that will offer spectacular benefits to the right borrower, but it may not be right for everyone. If paying your house off quickly is your top priority, the IO loan is not for you. Let us help you select the home loan that is perfect for your individual home goals.
Frequently Asked Questions
Q: Can you buy a home before selling your current one?
Yes, many homeowners can buy a new home before selling their current one by using equity, bridge loans, or other financing options. The right approach depends on your financial situation and goals.
Q: What is a bridge loan and how does it work?
A bridge loan is a short-term loan that helps cover the gap between buying a new home and selling your existing one. It allows you to access your home’s equity to fund your next purchase.
Q: How do I qualify to buy before I sell?
Qualification depends on factors like your income, credit, and how much equity you have in your current home. A lender can help you review your options and determine what’s possible.