Homeowners who have done well for themselves financially might be thinking about finding a larger or more luxurious home, and it’s definitely earned. But for many business-focused or investing-savvy individuals, making payments on both principal and interest limits their available cash flow and can restrict their ability to do the next lucrative deal. That money and its earning potential can serve a better purpose in the short term.
If you find yourself in a similar situation, an interest-only mortgage could be the solution that fits best. It combines the benefits of a fixed rate mortgage with an interest-only period off the start. Although interest-only loans have received a bad rap, the pros most often outweigh the cons by a wide margin. Here’s how interest-only mortgages work and who they can serve.
The Interest-only Mortgage Structure
Picture your ideal home. Maybe it’s beachside or possibly in a neighborhood where you’ll rub elbows with the occasional famous person. Or, it could be in a community with the best schools and malls where your family can grow up safely. If you could qualify for the mortgage with your current earnings, you could be eligible to defer principal payments for the first ten years of the loan.
With an interest-only mortgage, you quite literally pay the interest only during the initial loan term. The full value of the home loan is essentially deferred until a time when it converts to a fixed-rate mortgage that’s amortized over a set term such as 30 years. Once the amortized period begins, both principal plus interest payments begin.
Pros of an Interest Only mortgage
Taking advantage of an interest-only mortgage puts you in control of how you use your money. Advantages include:
- Flexibility on mortgage repayment. Like credit cards, you can choose if and how much you’d like to pay towards the principal amount, above and beyond the interest amount.
- Lower payments during the initial period. Your monthly mortgage payments are significantly lowered, allowing you to spend your income where it’s more important to you.
- Serviceability for rising incomes. If your income is about to grow soon but you want to buy a home now, an IO mortgage can make homeownership affordable while you wait for earnings to kick in.
- The ability to afford a more expensive home. If you need more space but you need some time for your nest egg to come through, an interest-only mortgage gives you some breathing room.
- Tax deductions. For mortgages under $1 million, mortgage interest is tax deductible. It can be a strong play to keep your mortgage balance high as long as you can and pay only the interest, affording you more deductions at tax time.
- An ability to invest your money instead. Can you think of ways to make your money earn a higher rate than mortgage interest? Rather than putting it into home equity via principal payments, put it into your investment strategy.
MBANC Offers 10-year Interest Only Mortgages
At MBANC, we specialize in high-balance and non-conforming mortgages. We now offer a 10-year interest-only mortgage on all of our mortgage products. Whether you’re searching for a conventional mortgage, jumbo loan, bank statement loan, 1099-only, or foreign national mortgage, you may be eligible. After the 10-year IO period, your mortgage converts to a 30-year fixed mortgage, so there’s no need to refinance.
Want to learn more about interest-only mortgages at MBANC, or wondering how to apply? Contact us today to find out more.