Are deferred interest mortgages really dangerous?


Well, the answer is yes, if you are exhausting the deferred interest option. However, deferred interest mortgages are simply very flexible financial tools that can be very helpful if one is educated about mortgages, homeownership, tapping home equity for different purposes, etc.

What payment options are available with deferred interest mortgages?

Deferred interest mortgages are Pick-a-Pay adjustable rate mortgages, where one can choose between the following monthly payment options:

  • A fully amortizing payment covering both interest and principal;
  • Interest-only payment that pays the accrued interest only and leaves the mortgage balance intact;
  • A minimum payment option that can hold for one month to several years, depending on the loan agreement, and that is lower than the interest-only payment and leads to loan balance increase.

    Mind it, some Option ARM loan programs will not accrue interest on the deferred interest, but some will.

Deferred interest home mortgages are considered dangerous if the terms are predatory - that is, low payment for several months and radical payment increase afterwards with a costly prepayment penalty. It is in your best interest to study your loan agreement before you sign it, perhaps with a mortgage loan professional, to avoid becoming a predatory lending victim.

However, if your deferred interest ARM mortgage loan is a legitimate one, it is simply a flexible homeownership plan allowing for ultra low payments for several years that frees up cash you could use to pay off other debt, or simply keep your expenses low.

In any case, taking a separate second mortgage or home equity loan for different purposes usually involves closing costs and greater indebtedness than using the minimum payment option of deferred interest mortgages.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 2.9/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: