What is an interest only home loan?
An interest only loan is a loan that offers an initial interest-only period, which can range from three to ten years, during which you are only required to pay the interest on the loan. At the end of that initial period, the payment is raised to the fully amortizing level. The obvious advantage to this type of mortgage is that it can significantly reduce your monthly mortgage payment. Consider a $300,000 loan at 5.5% amortized over 30 years. This loan would result in a monthly payment of principal and interest of about $1700. The same loan with an interest-only option would require a payment of only about $1375. It is important to note that in this example, we are comparing loans with the same interest rate. Often, a lender may claim that an interest-only loan has a lower interest rate, but the comparison being made may not always be valid. For example, an adjustable rate mortgage with an interest-only option will have a lower rate than a fixed rate mortgage without the option, but tha
