Guide to Interest Only Mortgages

Take out an interest only mortgage to improve your cash flow
By Shannon Tani

Interest only mortgages are becoming an increasingly popular ways to finance a home or business loan. Due to the low initial payments, interest only mortgage loans are an excellent way for people like business owners, who may not have steady paychecks.

This is how an interest only mortgage works:

1. You take out a mortgage through interest only mortgage brokers. During the first 5-7 years, you only need to pay the interest payment for your mortgage. This is a much smaller payment than you'd pay with a typical mortgage.

2. Even though companies only require you to pay the interest on an interest only home loan, you have the ability to make payments towards the principle at any time. This means that if you get a bonus or have a particularly good month, you can easily take that money and pay down some of the principle.

3. At the end of the term on your interest only loan, you can make a lump sum payment, refinance into a regular fixed rate mortgage, or begin making payments on the principle. All of these options signify a large jump in payments.

Action Steps

The best contacts and resources to help you get it done

Find an interest only mortgage lender for your commercial mortgage When you first start your business, you cannot be sure that you will make enough money to pay for your mortgage. This makes an interest only mortgage payment especially attractive. As your business grows, you will be able to make larger payments towards the principle.

I recommend: Apply for an interest only commercial mortgage through Commercial Banc. Alternatively, if you want to find a lender that is in your state, you can look at the state directory of interest only lenders at HSH Associates.

Talk to your bank about interest only home mortgages An interest only home mortgage could be an excellent choice for business owners. Most business owners have some months where they make more money and some months where they make less. An interest only home loan can help by lowering the required monthly payment.

I recommend: MortgageLoan.com allows you to easily compare interest only mortgage rates. Simply fill out their form and see the rates of many banks. If you're not sure whether an interest only mortgage is right for you, use the calculator at Citizens Bank to compare payments of an interest only loan vs. a fixed rate loan. Then, you can apply for the loan that you want.

Talk to brokers about an interest only jumbo mortgage A jumbo mortgage is a mortgage for a higher than average amount of money. This is perfect for business owners that have expensive property, such as apartment buildings or vacation rentals.

I recommend: Bankrate.com gives regular updates on current rates for jumbo interest only mortgages. You can apply for jumbo mortgages through LoanShoppers.net. This will allow you to get a better rate, as companies will compete for your business.

Tips & Tactics

Helpful advice for making the most of this Guide

Some people use interest only mortgages in order to purchase property that would normally be out of their price range, assuming that they will be in a better financial position in a few years. This is not always the case. When you purchase property, think to the future and make sure that you will be able to make payments.