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Interest Only Mortgage Payment
Traditional mortgages require that each month you pay back some of the money you borrowed (the principal) plus the interest on that money. The principal you owe on your mortgage decreases over the term of the loan. In contrast, an I-O payment plan allows you to pay only the interest for a specifi ed number of years. After that, you must repay both the principal and the interest.
Most mortgages that offer an I-O payment plan have adjustable interest rates, which means that the interest rate and monthly payment will change over the term of the loan. The changes may be as often as once a month or as seldom as every 3 to 5 years, depending on the terms of your loan. For example, a 5/1 ARM has a fi xed interest rate for the fi rst 5 years; after that, the rate can change once a year (the “1” in 5/1) during the rest of the loan. More information on ARMs is available in the Federal Reserve Board’s Consumer Handbook on Adjustable Rate Mortgages.
The I-O payment period is typically between 3 and 10 years. After that, your monthly payment will increase—even if interest rates stay the same—because you must pay back the principal as well as the interest. For example, if you take out a 30-year mortgage loan with a 5-year I-O payment period, you can pay only interest for 5 years and then both principal and interest over the next 25 years. Because you begin to pay back the principal, your payments increase after year 5.
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. What is Interest Only Mortgage Payment is brought to you by SimplifyEm Pay Rent Online and Property Management SoftwareYou might also want to read:
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