First time Home owners loan

Adjustable Rate Mortgage

Fixed Rate Mortgage

Home Equity

Combination Rate

Reverse Mortgage

Balloon Mortgage

Interest Only Loan

Veterans Administration

Intrest Only Mortgage

A mortgage is “interest only” if the scheduled monthly mortgage payment – the payment the borrower is required to make --consists of interest only.

Generally the option to pay interest only lasts for a specified period, usually 5 to 10 years. During this period the borrower pays only the interest on the loan and the principle remains the same. After the interest only period ends the borrower is responsible for repaying both the principle and the interest on the loan.

For example, if a 30-year loan of $100,000 at 6.25% is interest only, the required payment is $520.83. In contrast, borrowers who have the same mortgage but without an Interest only option would have to pay $615.72. This is the "fully amortizing payment" – the payment that would pay off the loan over the term if the rate stayed the same. The difference in payment of $94.88 is “principal”, which go to reduce the balance on the loan.

© 2007 Scottie Watts