An Interest Only loan is a non-amortized loan in which interest is due at regular intervals for the initial fixed period of the loan. Interest Only loans are designed to offer the lowest payment possible because the buyer is only paying the interest that has accrued on the principal loan balance since the previous payment. After the interest only initial fixed period, the payment adjusts back to a fully amortizing principal + interest mortgage payment. The rate after the initial period will adjust according to the type of ARM.

There are several interest only loan options such as:

3, 5, 7 or 10-Year Interest Only ARM
Similar to a regular principal and interest adjustable rate mortgage except monthly payments are on the interest portion of the loan for a set period of time. The interest rate is fixed for the first 3, 5, 7 or 10 years depending on the loan program you choose.

10/30 or 15/30 Year Interest Only ARM
The interest rate is fixed for the first 10/15 years. Monthly payments are on the interest portion of the loan. At the end of the initial term the payment adjusts into a fully amortized payment.

1, 6, or 12-month LIBOR Loans
This loans adjust monthly as opposed to annually based on the LIBOR Index. Interest rates are adjusted on a 1, 6, or 12-month basis using a predefined margin plus the current LIBOR rate.

Interest only mortgages are a viable option for buyers who wish to purchase a high-value home for the lowest possible monthly payment. Borrowers also have the option to invest money towards the principal loan balance; doing so will adjust monthly payments lower accordingly. Buyers should consider an interest only mortgage if their income varies from month to month because their wages are commissioned/bonus based, or they expect a substantial increase in their income in a few years. In comparison to a conventional 30-year fixed rate loan, Interest Only loans offer many attractive features. To learn more about our Interest Only products contact your Preferred Empire Mortgage loan officer for details.