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Interest only mortgages are increasing in popularity. Borrowers seeking these
loans do so for a variety of reasons including but not limited to the following:
(a) Want the lowest payment possible without negative amortization,
(b) Seeking to qualify for a larger mortgage to buy a bigger house.
(c) Expects a large sum of money in the future and wants the option of paying
down the principal amount resulting in an immediate decrease in monthly payments.
(d) Borrower prefers to save or invest the cash that would have gone into
principal reduction on the mortgage loan.
(e) Borrower has fluctuating income levels and needs the budget flexibility
that interest-only payments may provide.
Interest only mortgage programs include 1 month and 6 month LIBOR based
adjustable rate mortgages, 3/1 and 5/1 adjustable rate mortgage loans and
30 year fixed rate mortgages.
Caution
Be sure you read and understand the loan disclosures before accepting this
option. Some interest only mortgage programs have negative amortization
capabilities which means your mortgage balance could increase.
Ask about frequency of rate changes. Know the index and margin if it is an
adjustable.
Remember - you are only paying the interest due each month so if there
is no additional payment your mortgage loan balance will not decline.
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