:: Interest only Mortgages

Looking for a way to afford more home for less money?

The answer may lie in an interest-only mortgage loan, an old product that is making a big comeback as lenders devise ways to turn rising home prices to their advantage.

The mechanics of an interest-only mortgage loan are simple. For a set period (generally in the early years of a mortgage when most of the payment goes toward interest anyway), you pay only the interest portion of your monthly payment, freeing up for other purposes the amount that would normally go toward paying off the principal.

At the end of the interest-only period, your loan reverts back to its original terms, with the monthly payments adjusted upward to reflect full amortization over the remaining years of the loan (for instance, following a five-year interest-only loan, a 30-year mortgage would now fully amortize over 25 years).

You won't build equity during the interest-only term, but it could help you close on the home you want instead of settling for the home you can afford.

Since you'll be qualified based on the interest-only payment and will likely refinance before the interest-only term expires anyway, it could be a way to effectively lease your dream home now and invest the principal portion of your payment elsewhere while realizing the tax advantages and appreciation that accompany homeownership.

The concept is not a new one; back in the Roaring Twenties, interest-only mortgages were commonplace. At the end of the term, homeowners typically refinanced. The system worked great unless your home lost value or you lost your job.

Which is exactly what happened when the Great Depression hit. Foreclosures skyrocketed and lenders abruptly stopped writing interest-only loans. (The practice has continued elsewhere, however, notably in Great Britain .)

Wells Fargo began offering interest-only products, primarily to its jumbo loan customers, in June 2001. Washington Mutual followed with interest-only loans last September. Fannie Mae purchased $1.2 billion interest-only loans on the secondary market last year; it's not a sizable market segment yet, but it's one that is expected to grow.

For more details please contact:

One Stop Financial Services
1888 Kalakaua Ave., Suite C312 Honolulu, Hawaii 96815 [MAP IT]
Phone: 808-983-3323
eFax: 866-881-3304
E-mail: approve@mortgage-hawaii.com

Online Inquiries | Free Mortgage Quote