Interest Only
With real estate values appreciating so much today, it is no longer necessary to pay principal with each month's payment in order to see your equity grow. For this reason interest only products have become very popular. Interest only loans come in both adjustable and fixed rate options. The interest rate is slightly higher than the fully amortized comparable adjustable or fixed rate, but the payment is substantially lower as you are not paying principal each month. Interest only adjustables come in a variety of formats. The most popular have a fixed rate for 3, 5, or 7 years and then become annual or semi-annual adjustables. During the fixed rate period the loan is interest only and becomes fully amortizing at the end of the fixed rate period. The loan period is chosen keeping in mind the length of time the borrower is going to be in the house. This type of mortgage is helpful for commissioned individuals who may want to pay interest only one month and then another month when a large commission comes in pay towards the principal
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