How does the 80 20 interest only mortgage loan work?


The 80 20 Interest Only mortgage is actually the most common "zero down" 100% LTV IO home loan. The other popular IO combo loan is the 70/30. They are structured in a very similar way and allow zero down financing with an interest only loan and a standard one (without IO option).

What are the features of 80/20 IO mortgages? Is there 100% Interest-Only financing?

An 80/20 Interest Only home loan is structured as an Interest-Only first mortgage for 80% of the loan amount and a junior lien for the remaining 20%. The first mortgage loan is usually a lower rate Interest-Only fixed or adjustable rate; the smaller loan is usually higher rate, fully amortizing second mortgage or home equity loan/line of credit.

Of course, it is possible to find 100% Interest Only financing - an 80/20 or 70/30 combo IO loans may be split into two IO loans. Or, a single 100% IO mortgage might be available from the lender.

However, though, do not expect to qualify under 100% Interest Only financing that easy. Those loans usually require much higher FICO middle score, and the other credit standards are higher, too. Also, the longer the Interest Only period, the higher the rate and the credit underwriting criteria.

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