Question:

Is there any advantage of 100% Interest Only mortgage loan?

Answer:

There is advantage of 100% Interest Only (IO) mortgage to an investor who is not keeping the property anyway, or to a homebuyer who is certainly planning to sell and move out within several years. Other than that, what is the point of having a home for 5 years and more and not having any equity on it whatsoever?

What if you end up in the same home 10 years later despite your intentions to move out and homes in your areas have depreciated in value? No equity and unable to pay back the loan don't seem a good situation and only because you were paying not even $50 /month towards principal for the Interest Only period.

Watch out for Interest Only adjustable rate home loans with No Cash Down.

No matter how attractive it may be, it is wise to pay some petty cash, say $50 /month, towards principal instead of risking home depreciation; or having the monthly payment increased without actually paying off principal. With an Interest Only adjustable rate mortgage (ARM) you risk your payments to go up significantly and still you won't be building any equity.

Interest Only mortgage loans with 90% LTV make more sense.

Having some equity in your house best preserves your interests in the property. That is, home values will rarely go down as much and you could still add some cash towards interest only payment to keep building equity and not having to rely on home appreciation to do it for you.

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
Definitely
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: