An Interest Only Loan, offered on fixed or adjustable rate mortgages, has an interest-only payment option. The option to pay only interest lets you pay only the interest portion of your monthly payment for a fixed period. At the end of that period your loan becomes fully amortized. The borrowers who typically benefit the most by obtaining an Interest Only loan are those with:
A Need to Qualify: Some borrowers may qualify for a loan with an Interest Only who could not otherwise qualify. The interest only payment is lower than a fully amortized payment, reducing the ratio of housing expense to income that lenders use in qualifying borrowers.
A Need for Flexibility: Borrowers with fluctuating incomes may benefit from the flexibility the Interest Only mortgage allows them. They can make the interest only payment when their finances are tight. When their finances are more bountiful, they can then make a substantial payment to principal.
