Interest Only - What is it?
July 28th, 2007 by John Thomas
Interest Only
Interest is what a borrower pays a lender over and above the original amount of the loan, as compensation for the use of the money over a specified period of time. An interest only loan requires a payment that pays the interest that has accrued on the loan for the current month, but with no principal reduction required at all for some specified amount of time, outlined in the Note signed at closing. Permanent mortgage loans normally only allow interest only payments for lower cash flow for a specific number of years. The most common is the 5-year interest only product, yet there are many other types available in the marketplace.
Summary:
Interest only products offer a wonderful way to lower monthly cash flow for a consumer, but do carry some risk and must be evaluated to make sure they fit for the particular borrower.
Ideally Suited for:
Ideally suited for the more experienced borrower who can use the lower cash flow to maximize financial leverage by pursuing other financial opportunities.
I am a Delaware native who has been actively involved in the Mortgage and Finanace industries for over 10 years