The first chart above depicts monthly payment schedule for a interest only loan. Borrower pays only the interest in the initial loan period, & afterwards mortgage re-amortizes to pay the balance on the prinicipal amount of $100,000 over the remaining term of the mortgage.
Second chart shows that the principal amount remains constant during the I/O term & begins to decline when borrowers starts making principal balance payment.
Interest only mortgages are basically suitable for borrowers who;
- are trying to prevent negative cash flow during starting period of mortgage,
- expect their property to appreciate considerably
- plan to flip there property,
- have other section where cash is being used which they have to pay as principal.
Thursday, February 7, 2008
A few things about Interest Only Loans
