Are you looking to keep your monthly mortgage payment to a minimum without giving up the security of a long term fixed rate product? If this sounds like your ideal scenario, then a interest only 30 year loan might be the right product for you. 30 year interest only mortgages typically come with a ten year (often referred to as a 30/10 year interest only loan) or fifteen year fixed (30/15) interest only period. After the 10-15 interest only period expires, the loan is then re-amortized so that the payment includes both principal and interest being paid for the remaining term of the loan. The rate does not change after the interest only term which makes the products less volatile than adjustable rate mortgage products. Terms and conditions vary by lender so be sure to ask a mortgage professional for details of their various offerings.
How much could one save with a 30 year fixed interest only mortgage vs. a traditional fixed rate mortgage (P&I)? Let’s take look at one example:
Traditional 30 year fixed rate mortgage
Note Rate: 6.375%
Loan Size: $200,000
Monthly principal and interest payment: $1,247.74
With the interest only option, you would save $164.41 per month. That would translate to a total savings of $19,729.00 over the first ten years of the loan. However, you would still owe the full $200,000 loan balance unless you made additional principal payments from time to time. The beauty of these loans is that you may likely be able to do just that. The months where you can make extra payments you can choose to do so and the months were you prefer to spend money elsewhere, you can go that route as well. The choice is yours to make. Once again, terms and conditions may apply so ask your mortgage professional for details. Also please note that the example scenario above is for educational purposes. You should consider APR and closing costs before selecting a product or provider.
Interest only loan 30 years
Loan Size: $200,000
Monthly interest only payment for first 10-15 years: $1,083.33
Please note that many of the companies listed in the rate survey do not advertise these products despite being able to offer them. This could be because they are not as popular as fully amortizing fixed rate products, lenders may lack of an appetite for them in their portfolios (as they carry a higher degree of risk), or for multiple other reasons. If you do not see any lenders posting rates for 30 year interest only loans, you may need to check out conventional conforming 30 year fixed rate pricing and then contact the various companies directly for more information on their interest only products.
30 year interest only loan programs are available for most types of residential properties including detached single family homes, 2-4 unit multi-family properties, condominiums, and townhouses. Funding is often available for primary residences, second homes, and investment properties. Rates car vary for any number of reasons including a borrower’s credit profile, the kind of property being financed, and the type of occupancy held, to name just a few. Contact the various mortgage companies on this site for more information.
Is this financial instrument right for you?
Interest only loans may be ideal for those who anticipate future earnings growth and for those who like flexibility in managing their personal finances. You should speak with a mortgage professional to discuss the benefits and pitfalls of these products to ensure that you are making a well educated decision.
Other Interest Only Loan Options: