TUESDAY's TIP: Interest ONLY loans!!

Interest only loans - The Myth, The Facts and The Legend.

All info is provided by Lysa Griffith, OriginPoint
Regional Manager/SVP of Mortgage Lending, NMLS ID: 754386

In response to the 2007 - 2008 mortgage meltdown, one of the casualties was the interest only loan. Interest only loans were originally designed as cash flow tools for higher net worth clients and were not necessarily "bad" loans, but their reputation got tangled up with that of riskier loan programs.

The loan products that truly contributed to the mortgage meltdown were negatively amortizing loans where banks offered loans with a teaser interest rate to start which was below the note rate.

Buyers could make a minimum payment for a limited period of time that was less than the interest only payment and allow the loan balance to grow. Once the loan balance reached 125% of its original value, the loan would reset, and the payment would increase to a fully amortized payment at the full note rate at the higher loan amount.

These loans were super attractive in the beginning, and then a definite cold plunge when reality set-in and the payment jumped up.

Fast forward and lenders offer amazing interest only loans. Today's interest only loans do not negatively amortize and are generally stable loans that give homebuyers control over cash flow. In addition to lower monthly payments, one of the best benefits is that if you pay additional amounts towards principle, the monthly mortgage payment resets automatically the next month.

The new interest only loans feature:

Fixed rate options for the entire term - no surprises
Interest only for the first 10 yrs
Amortizes after year 10 and if it's a fixed rate, you now have a fixed rate program
There are also 40 yr terms available – so after the interest only term (yr 10), you roll into a 30 yr fixed

Advantages of this program: