With an interest only mortgage, you pay solely for interest on a loan for a pre-defined period (usually 5 to 10 years). Once that interest-only period is over, the loan effectively turns into a standard fixed-rate loan, where each payment goes toward both interest and principal.
Note that interest only loans may have a higher interest rate, more points, or more fees than fully amortizing loans.
What are the advantages of an interest only mortgage?
- Keep monthly mortgage payments very low during the initial, interest-only period
- Lower payments let you afford more house for a given payment, or save more for other financial goals
- Get payment flexibility for irregular incomes
- Maximize the tax deductibility of your mortgage payments*
* Newfi does not provide tax or accounting advice. This website is not intended to provide, and should not be relied on for, tax advice. Consult your tax advisor before engaging in any borrowing transaction.
What are the disadvantages of an interest only mortgage?
- Interest rates may be higher than with a conventional, fixed-rate loan
- You pay more in interest over the life of the loan, compared to shorter-term loans like the 30 year fixed
- Takes longer to build equity, since all your early payments go to interest
- Monthly mortgage payments will rise once the interest-only period ends
- May be harder to refinance unless your property appreciates during the loan period
How does an interest only mortgage compare to a 30 year mortgage?
- A typical 30 year fixed-rate mortgage lets your pay less interest over the life of the loan compared to an interest only mortgage. Interest rates are usually lower and you can start building equity immediately. Monthly mortgage payments are likely to be higher, however. Learn more about the 30 year
- An interest only mortgage has lower monthly payments during the first, interest-only period, allowing you to afford more house for a given payment. The lower monthly payments also mean more cash for you to spend or invest on a monthly basis. However, you pay more in interest over the life of the loan and do not begin to build equity until the interest-only period expires, or you decide to end it.
What would be my payment on an interest only mortgage?
You can estimate your monthly payments on an interest only mortgage by using our interest only mortgage calculator. Note that interest only mortgage rates depend on your credit, income, and other factors, so you should contact us to figure out what your exact mortgage payments are likely to be.
What other mortgage options do I have?
- Want a lower interest rate, or to build equity faster? Consider a 30 year mortgage.
- Need easier terms? Consider an FHA loan, which also permits low down payments and more flexible credit qualifications.
- Likely to move in fewer than 5 to 10 years? Consider an adjustable rate mortgage.
Why trust Newfi Lending with your interest only mortgage?
Newfi is a direct lender, not a broker, so we can make lending decisions fast and at low interest rates. We’ve earned a five-star customer satisfaction rating from LendingTree for our low rates, fast processing, and excellent customer service. Give us a call at (888) 316-3934 and see just how friendly we are!
How can I get more information?
Talk to us at Newfi Lending. We’ll get you a personalized interest only mortgage rate and review other lending options tailored to your situation.