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Interest Only Mortgages With NON-QM Loans Versus Amortized

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Interest Only Mortgages With NON-QM Loans Versus Amortized

This BLOG On Interest Only Mortgages With NON-QM Loans Versus Amortized Was UPDATED On May 15th, 2019

Traditional mortgages require that borrowers pay back the money borrowed in the form of principal plus interest.

  • Most homeowners dreams are to have their homes clear of any mortgages and have it free and clear
  • Most government and conventional loan programs have fully amortized loans
  • The most popular home loans today are 30 year fixed rate mortgages
  • With fully amortized 30 year fixed rate mortgages, homeowners who make monthly principal and interest payments will have their home loan balance paid off in 30 years
  • There are interest-only mortgages that benefit short term homeowners or real estate investors on commercial properties

What Are Non-QM Loans

Gustan Cho Associates Mortgage Group are experts on non-qm loans and bank statement loans for self-employed borrowers. Both of these loan programs have interest only mortgage loans. Many borrowers of non-qm and bank statement loans for self-employed borrowers choose interest only versus fixed-rate mortgages due to the lower monthly payment and because they plan on refinancing sooner than later.

  • NON-QM Loans are non-traditional loans often used as bridge loans
  • There is no waiting period after housing event and/or bankruptcy with non-qm loans
  • Many property owners who have less than perfect credit often don’t want to lose out in a rising housing market and purchase a home with non-qm loans
  • They often choose interest-only mortgages due to the lower interest rates and lower monthly payment
  • When they button up their credit and income profile, they finance with traditional government and/or conventional loans
  • Bank Statement Loans for self-employed borrowers require 24 months of bank statements
  • 24 months bank statement deposits are averaged and that will be the borrowers’ monthly income
  • Not income tax returns are required
  • 10% to 20% down payment is required
  • Down payment requirements depends on borrowers credit scores

How Does Interest Only Versus Fixed Rate Mortgages Work

Interest Only Mortgage best benefits for those who are using this type of loan either as a bridge loan or plan on refinancing this loan to a permanent end loan in the near future.

  • Fully amortized loans get paid once the term of the loan is over
  • As monthly payments get paid, a portion of the monthly mortgage payments goes to pay down the principal
  • As a result of these payments, the principal decreases over the term of the loan
  • At the opposite end of the spectrum are interest-only mortgages
  • Interest-only mortgages allow borrowers to pay only the interest accruing on the loan
  • The principal remains the same
  • Borrowers only pay interest payments only
  • So if borrower borrowers $200,000 and makes timely payments for five years, the balance at the end of five years will still be $200,000

 Payments On Interest Only Mortgages

An interest-only mortgage is a mortgage loan program where the interest only is paid. The principal of the loan balance remains the same.

  • The payment that is required on interest-only mortgages consists of only the interest for a specified period of the time
  • Terms are normally five years, seven years, or ten years
  • At the end of that specified time period, the mortgage loan balance remains the same and is not changed
  • When the period of the fixed term of the mortgage expires, the loan will re-amortize and both the principal and the interest of the mortgage loan are due
  • At that time, the loan is normally refinanced or a new mortgage loan can be undertaken

Basics Of Interest Only Mortgages

Under an interest-only mortgage, a borrower may choose to pay more than only the interest. By doing so they have the additional money applied toward the principal.

  • In fact, a borrower could choose to make the fully amortizing payment each month
  • The borrower can choose to retire the loan as though it had been structured as a traditional amortized principal and interest term loan

In order for borrowers to pay back the mortgage loan balance of an interest-only mortgage, borrowers need to pay a fully amortized monthly payment and NOT just the interest only

Interest Rates On Interest Only Mortgages

The interest rate on an interest-only mortgage is typically very lower than 30 year fixed rate mortgages.

Most interest-only mortgages are not issued by residential mortgage lenders. Interest only loans are ideal for borrowers who are using it as a bridge loan. Commercial and portfolio mortgage lenders are lenders often offer interest-only loans. It is ideal for builders and property developers where they pay interest only on a project and once the project is complete, they either sell it or refinance it to a term loan. Most builders and commercial real estate developers use interest-only mortgages. We offer interest-only home loans on non-qm and bank statement mortgage loans for self-employed borrowers. Interest only home loans are only recommended for short term real estate investors or homeowners who are using it as a temporary bridge loan until their credit and finances qualify them for traditional mortgages.

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