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The Details: Interest Only Loan Program

An interest-only loan can be an excellent way to overcome temporary income limits, a sound investment strategy, a way to realize a home-buying dream—or all of the above. But it does require a little forethought.  Since this loan pays interest first, equity is more difficult to acquire; borrowers must plan ahead on how they’ll pay the higher monthly payment of combined principle and interest. But with an actionable investment strategy, many borrowers can benefit from low interest rates and lower monthly payments, enabling them to invest in the most house for the least money.

Sam and Mary: Upwardly Mobile

Sam and Mary bought a home in a terrific, upscale neighborhood. Based on their income, it’s outside their current means. But Sam, who knows his company track record, will get a hefty end-of-the-year bonus, and Mary, a student, will graduate next semester. She's currently being pursued by two top firms, suggesting a salary to in line with Sam's.

In Sam and Mary's situation, an interest-only loan gives them a way to invest in their future home on their current income. It also frees earnings to pay off high-interest credit card debt, enabling them to afford the higher mortgage payment to come. Additionally benefiting from the tax savings mortgage interest offers, an interest-only loan means Sam and Mary are reducing high-interest debt while their mortgage debt works for them. 

Sharon: A Savvy Investor

Sharon, an HR consultant, is under a five-year contract with a company growing its workforce from 500 to 5000. As a result, the area is experiencing a real estate boom. With the help of an interest-only loan, Sharon bought a home in a desirable area that is rapidly appreciating. She expects to really benefit when she sells.

In the meantime, Sharon's monthly payments are less than the rent she was paying. And not only does she benefit from the tax savings afforded by mortgage interest, her new home has given her enough room to establish a home office, a bonus tax deduction and a means to manage additional clientele. An interest-only loan has given Sharon tax benefits, a way to develop her business and a smart investment strategy—since the home may double in value.

Sam, Mary and Sharon are typical examples of borrowers who manage to make the most from an interest-only mortgage. These borrowers reap the tax-deductible benefits of mortgage interest, while sowing plans or monies toward principle, other investments, home improvements and appreciation, education, savings, retirement contributions or reducing high-interest debt. Since they’re only paying interest on their loan for a set period of time, they pay less now, but have a viable plan and act to reduce or afford higher payments later. 

Is an Interest-Only Mortgage Right for You?

If you can answer 'yes' to one or more questions below, an interest-only loan may be perfect for your situation.  Contact us today to learn more about the MortgageEase interest-only loan programs.

  • You can count on your income to climb through earnings, bonuses or commissions, and you plan to apply additional earnings toward principle, which will reduce the amount of your monthly payment when the interest-only term expires.
  • Or, you can count on additional income in the near future: you know you’ll be able to afford the higher monthly mortgage payments when principal and interest combine.
  • You’re a smart investor: the house you’re eyeing is expected to dramatically increase in value—an equity appreciation benefit you’ll realize when you sell or refinance.
  • Your interest-only loan purchase is part of an overall investment strategy that may include real estate, a retirement fund, a college education for yourself or education funds for your children.
  • You already have a significant amount of equity in your home.
  • You plan to contribute to your investments or savings account to lighten the load of forthcoming higher payments.

For some borrowers, an interest-only loan is risky--especially if there is no viable plan or income to cover a dramatic increase in your monthly payment after the initial interest-only time period of the loan. This loan is probably NOT a good borrowing choice if:

  • Your salary or income is static—you can’t expect extra earnings necessary to cover the monthly mortgage increase. 
  • Your future promises additional expenses such as auto loans, student loans, education expenses for you or your children or high-interest debt without additional income boosts.
  • You have a history of overextending yourself about debt—it’s unlikely you’ll be able to afford more mortgage than you and your income can manage. 

If an interest-only loan fits into your investment plan, just contact your personal MortgageEase consultant to fill out an application today! 

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