Common Interest-Only Loan Programs
While your lender may have other interest-only loan programs
available, the following are some of the most popular programs
available currently and should give you an idea of the kinds of
programs that you have to choose from when you are seeking an
interest-only loan.
There is the three year interest only adjustable rate mortgage
(ARM). This is actually a 30-year loan which gives you the option
of making interest-only payments for the first three years of
the 30-year loan. After three years passed, the loan converts
to a 27-year standard fully-amortized loan with an adjustable
interest rate.
Once the loan converts to a 27-year fully amortized loan, your
monthly payments will increase, and –depending on what the
interest rate is at the time of conversion – will likely
be higher than they would have been had you taken out a 30-year
fully-amortized loan in the beginning.
The five year interest-only ARM is identical to the three year
interest ARM with the exception that you have the option of making
interest-only payments for the first five years of the 30-year
loan and after the five years are up the loan automatically converts
into a 25-year fully-amortized loan. Again, depending on interest
rates at the time of conversion, it is likely that your monthly
payments will rise substantially at the time of conversion.
The seven year interest only ARM is identical to the five year
ARM except that you have the option of making interest-only payments
for seven years and at the end of seven years your 30-year loan
converts to a 23-year fully-amortized loan with a considerably
high monthly mortgage payment.
The ten year interest-only ARM is a very popular interest-only
loan. Again, this is a 30-year loan with an option to make interest-only
payments for the first ten years. After 120 months the loan converts
into a 20-year fully amortized loan with a variable interest rate.
Expect a substantial increase in monthly mortgage payments.
The 10/30 interest-only loan is a fixed-rate loan with an option
of interest-only payments during the first 10 years of the loan.
After 120 months the loan converts to a fixed-rate fully amortized
20-year loan – and you can anticipate substantially higher
mortgage payments following the conversion.
The 15/30 fixed-rate interest-only loan has an option for interest-only
payments for the first 15 years of the loan and then converts
to a fixed-rate fully-amortized 15-year mortgage with a substantially
higher monthly mortgage payment.
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