More and more of today’s home owners are considering a interest only payment option with a jumbo mortgage. One reason many home buyers are turning to mortgages with interest-only payment schedules is so they can buy a more expensive home or some other large ticket item.
These mortgages have lower monthly payments, making qualifying easier. Unfortunately, lower payments don’t last for the whole length of the loan
With an interest only mortgage loan the borrower takes out a 30-year mortgage with an option to pay interest only for a set period of time, such as 3, 5, 7 or 10 years. After the end of the interest only period, the monthly payments re-adjust to include the principal, and the loan is re-amortized for the remainder of the term. Most people will then either refinance, start paying off the principal, or sell their property.
Interest only mortgages payments on a jumbo mortgage means that you have the option of paying the accrued interest only on a mortgage that is considered a higher amount than most traditional mortgage amounts.
As an example consider this:
Interest only Jumbo 5 year Adjustable rate mortgage, During the first five years of your loan you can either pay interest only, or include whatever amount of principal you wish, even a large principal prepayment if desired. After five years your loan will require monthly payments of both principal and interest.
Sample Interest Only Jumbo Payments
- Loan Amount: $417,000
- Interest Rate: 4.500% (for example use only, not a rate quote)
- Minimum monthly payments:
- Interest (4.50%) Only Mortgage = $1,563.75
- Principal and Interest (4.50%) Mortgage = $2,112.88
- Reduced monthly payment via Interest Only Mortgage= $549.13
These type of loans make possible high-end purchases of expensive homes, vacation homes, investment property and upscale luxury homes.
This flexible mortgage is most popular with people who need to manage their debts as carefully as they manage their assets and it gives them the tools necessary to do so. Most Americans still believe that it’s always best to pay down their mortgages as quickly as they can. But in a lot of cases that is not the situation. There are sometimes circumstances to the contrary.
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