Why interest only mortgage loans are recommended sometimes?


Loan officers should explain to borrowers why interest only mortgage loans make such great products.

On one hand, these are perfect mortgages for investors - investors are not interested in building equity on the property and don't need to pay off principal until the property is sold. When real estate is bought as a rental, or to be flipped for profit after some rehab - why should any cash go to repaying principal, when the property is likely to be sold in a year's time?

Also, home buyers living in high cost metropolitan areas can't always qualify under the fully amortizing payment but have expectations of income increase, and so they are able to skip buying a starter home and just get the home they want. On a $450,000 home loan, fixed rate, at 6.5% the fully amortizing payment is $2844. The interest only payment is $2437, or the savings are $407 /month.

Why are Interest Only mortgages more difficult to qualify for now?

Some Interest Only mortgages together with Option ARMs consisted most of the dangerous subprime loans that shattered the mortgage market. Currently, all underwriting standards are stricter, borrowers are underwritten for fully amortizing payments and reduced documentation loans are available only for perfect credit scores - 660 average FICO in the very least. Where you are offered more lenient mortgage loan underwriting requirements, it is wise to check for predatory lending terms.

IO and Option ARM loans are usually recommended for the wealthy customers - those loans allow monthly payments to be planned for greater tax benefits, which can be huge for high net worth clients.

The average borrower is advised to use professional home loan counseling and advice before settling with one of these.

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