Question:

How to handle a Fixed Rate Interest Only mortgage and do interest rates adjust?

Answer:

Fixed Rate Interest Only mortgage loans are great for homeowners. Not as popular as hybrid and pick-a-pay ARMs, fixed rate interest only mortgages have higher interest rates than strict FRMs, but allow the convenience of paying only interest for limited time - usually 5 to 15 years. After that the payment structure is adjusted to fully amortizing principal and interest payments.

Beware as the lower monthly payments one gets accustomed to with a fixed rate interest only loan may become pretty inflated once the adjustment occurs.

How to Approach a Fixed Rate Interest Only Mortgage

Refinance before the interest only period is over. Interest rates on a fixed rate interest-only mortgage are higher than rates for a conventional FRM, and it is not worth it to have an expensive fixed rate loan with a high rate.

Make payments towards the principal is one way to approach those loans. Fixed rate interest-only mortgages usually allow additional principal payment. If you can't accommodate this into your budget, don't bother. With or without principal payment, it is very likely you will want to refinance the loan before the principal becomes due.

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 3/5 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: