EXPRESS CAPITAL FUNDING GROUP 877-850-5270
Interest Only Mortgage
As property values increase, Interest Only mortgage loans become more popular. Interest only payments are significantly lower than fully amortized payments, and therefore buyers can afford more expensive homes. Lets look at some of the features of this product:
Interest Only mortgage payments do not reduce the principal balance. The balance stays the same for as long as one makes Interest Only payments. If a higher payment is made, the difference between the actual payment and the interest only payment will be applied towards reducing the balance.
Calculating interest only payments is very simple. Here is the formula:
Principal Balance, times Interest Rate (in decimal points, example 6.5% = .065), divide by 12 (months) = Interest Only Payment
PB x IR / 12 = IO Payment
So, let’s say for example the original principle balance on interest only mortgage loan is $300,000, and the interest rate is 6.5%. $300,000 x .065 = $19,500 / 12 = $1,625 is your interest only payments. Lets say a homeowner has a loan like that, but decides to make a payment of $2,000 every month. That means that the difference between $1,625 and $2,000, which is $375, is going to be applied towards reducing the mortgage balance. At this level of payment, this mortgage will be paid off in approximately twenty five years. One has to be careful and make sure that the financial institution that services the mortgage applies the payment towards reducing principal balance. It is a good idea to contact the financial institution ahead of time and find out what procedure one needs to follow to make sure that the payment is applied correctly.
Another important fact to know about Interest Only Mortgage loans is that most programs only allow interest only payments for the first ten years. After that the note re-amortizes in to a twenty year fully amortized note. Therefore, if one kept this note for ten years, making minimum interest only payments, as mortgage resets, monthly payments are going to increase. Lets look at the previous example: making only minimum interest only payments of $1,625 for ten years will keep the balance the same, and as mortgage resets, fully-amortized payment on a 20 year schedule at 6.5% will be $2,237, which is a jump of $612 per month.
Homeowners that got their Interest Only Mortgage loans within last few years at attractive interest rates and plan to keep it for a long time need to be aware of these features and plan accordingly.
Home Loan Refinance Debt Consolidation Debt Consolidation Loan Interest Only Mortgage California Refinance
Interest Only mortgage payments do not reduce the principal balance. The balance stays the same for as long as one makes Interest Only payments. If a higher payment is made, the difference between the actual payment and the interest only payment will be applied towards reducing the balance.
Calculating interest only payments is very simple. Here is the formula:
Principal Balance, times Interest Rate (in decimal points, example 6.5% = .065), divide by 12 (months) = Interest Only Payment
PB x IR / 12 = IO Payment
So, let’s say for example the original principle balance on interest only mortgage loan is $300,000, and the interest rate is 6.5%. $300,000 x .065 = $19,500 / 12 = $1,625 is your interest only payments. Lets say a homeowner has a loan like that, but decides to make a payment of $2,000 every month. That means that the difference between $1,625 and $2,000, which is $375, is going to be applied towards reducing the mortgage balance. At this level of payment, this mortgage will be paid off in approximately twenty five years. One has to be careful and make sure that the financial institution that services the mortgage applies the payment towards reducing principal balance. It is a good idea to contact the financial institution ahead of time and find out what procedure one needs to follow to make sure that the payment is applied correctly.
Another important fact to know about Interest Only Mortgage loans is that most programs only allow interest only payments for the first ten years. After that the note re-amortizes in to a twenty year fully amortized note. Therefore, if one kept this note for ten years, making minimum interest only payments, as mortgage resets, monthly payments are going to increase. Lets look at the previous example: making only minimum interest only payments of $1,625 for ten years will keep the balance the same, and as mortgage resets, fully-amortized payment on a 20 year schedule at 6.5% will be $2,237, which is a jump of $612 per month.
Homeowners that got their Interest Only Mortgage loans within last few years at attractive interest rates and plan to keep it for a long time need to be aware of these features and plan accordingly.
Home Loan Refinance Debt Consolidation Debt Consolidation Loan Interest Only Mortgage California Refinance