Common Interest-Only Mortgages

The most popular interest-only mortgages do not allow borrowers to make an interest-only payment forever. Generally, that time period is limited to the first five or ten years of the loan. After that period, the loan is amortized for the remainder of its term. This means the payments move up to an amortized amount but the loan balance is not increased. Two popular mortgages are:

    * A 30-year loan. The option to make interest-only payments is for the first 60 months. On a $200,000 loan at 6.5%, the borrower has the option to pay $1,083 per month at any time within the first five years. For years 6 through 30, the payment will be $1,264.

    * A 40-year loan. The option to make interest-only payments is for the first 120 months. On a $200,000 loan at 6.5%, the borrower has the option for the first ten years to pay an interest-only payment in any given month. For years 11 through 40, the payment will be $1,264.

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Common Interest-Only Mortgages
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