March 20th, 2012 1:37 PM by BILL WILBANKS
You know...I haven't talked about interest-only mortgage loans for several years now. But I've been watching them for the last few weeks as fixed rates have begun to creep higher. You might ask, "Why would I want that type loan with fixed rates as low as they have been for quite a while now" and you'd generally have me agreeing with you. And yes you're typically looking at a maximum 70% LTV maximum on these loans. But, the main advantage of that type loan is a seriously reduced monthly payment, 5 to 7 years typically, and that still has a useful purpose even today. Without sounding like I'm trying to be the lead drum on the matter, let me just present an example that may have a useful benefit to some in the market today. Simply put, the programs available today fall almost exclusively in the 5 and 7 year adjustable rate programs. The payment rate is fixed for either 5 or 7 years depending on the product you've chosen and based on interest-only for that fixed term rather than a fully amortized principal and interest payment.
So take a basic $100,000 loan on the 7/1 ARM version. The interest-only payment on that would be $260.42 based on the current 3.125% rate for the first 7 years. Compare that to our lowest fully amortized 7/1 ARM at 2.875% that has a principal and interest payment for the first 7 years of $414.89 and you quickly see the main selling point of the interest only product...the lower payment. Of course you will have to add the escrow items to these but they are there in both cases. That's a $154.47 lower payment on interest-only for each $100,000 financed. If this perks your interest call me today for program details.