What is an Interest Only second mortgage?


An Interest Only second mortgage loan will have the same characteristics as Interest-Only first mortgages. There will be a limited time during which the borrower is allowed to make interest only monthly payments, no principal.

At the end of the interest only period, those loans will require a balloon payment, or fully amortizing payments for the remaining time of the loan.

Interest Only Second Mortgages, HELs and HELOCs

HELOCs usually have a built-in option for interest only payments on the amount withdrawn for limited time. A HELOC may have a period for withdrawal and interest only payments for 5 or 10 years. Interest only HELs are less typical.

If the 2nd mortgage/HEL/HELOC is not repaid, the second mortgage lender could foreclose on the property. Borrowers who have plans to sell or refinance their house might make the most of interest-only second mortgage loans, home equity loans, or lines of credit.

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