Question:

What is an interest only mortgage loan and how to find free information on it?

Answer:

It is important that you know what an interest only mortgage loan is, and have an idea about how those loans work.

What is an Interest Only Mortgage Loan in Brief

An interest only home loan is actually a standard mortgage loan of any kind that allows your monthly mortgage payment to consist of the interest due for the month. No principal is paid and hence your monthly payment is smaller. This option is available for several years (2 to 10) and on many different mortgage types - fixed or adjustable loans, or hybrids, jumbos, etc.

IO home loans are of two basic types - Option ARMs and pure IO loans.

  • Standard Interest Only mortgages simply add an IO payment option to the fully amortizing loan and ask for higher interest rate.
  • Option ARMs are complex and flexible mortgage loans which allow at least 4 basic payment options:
    • Ultra low minimum payment;
    • Interest-only payment option;
    • Fully amortizing payments calculated over at least 15 and 30 year terms.

40 and 50-year amortization terms also can be in the Option ARM picture, but are less common.

After the minimum and IO options have been exhausted within up to 10 years, the loan amount is recalculated and the borrower will have to put up with higher monthly payments, refinance or sell the house if they didn't manage to pay off partially their loan.

Who is getting successfully the home mortgage loans with IO and minimum payment option and how to educate oneself about them?

Home buyers have long been attracted to lower payment loans. However, not everybody can handle one with success. Investors and more sophisticated consumers are likely to benefit more from such loans, compared to the average home buyer.

You are advised to read MortgageQnA's articles on the possible risks and complications that can arise from having a mortgage loan with interest only or minimum payment options.

Also, you can talk to financial advisor or loan officer, or attend free home loan counseling available at local Housing Counseling Agency (HCA) approved by HUD - the U.S. Department of Housing and Urban Development.

HUD counseling is also available on phone. You don't need to go anywhere. Just call them toll-free - HUD phone numbers for home education and/or counseling are available at their website

In any case, try to learn whatever you can before you take such a loan and make sure you understand those products, or follow specialized advice when taking one.

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