How to Get an Interest Only Loan

Interest Only Loans Offer More House for the Buck

Interest only loans allow qualified consumers to only pay the interest and not any of the principal during a specific period of time. At the end of the loan term, the principal borrowed is due in full. Interest only loans are often mortgages lasting for 5 to 10 years, have lower interest rates, and may also have the added feature of adjustable rates. At the end of the term, the borrower can refinance the principle or pay it off.

Things You'll Need

• Income verification
• List of assets
• List of expenses
• Tax returns for the last 2 years
• Home appraisal, if applicable
• Home purchase contract, if Applicable

Instructions

1. Determine the principal amount of the loan you need and calculate how much you can afford to pay each month on the interest. If you decide on an interest-free mortgage, you will likely qualify for a larger home. Consider the total monthly expenses of your new home. Higher utilities and higher taxes go hand in hand with a larger home.

2. Assess your income. Are you primarily paid with bonuses and other incentives? If so, an interest-free loan may be your best option. Interest-free loans can be flexible and lenders usually allow you to pay down up to 20 percent of your principle balance within a 12-month time frame.

3. Appraise your assets. Qualifying for interest-free loans requires less income and offers greater purchasing power than other loans. The principle amount will still be based on the appraised value of your new home and on your income.

4. Shop around for a banker or mortgage broker offering the best interest-free loans. Fees will vary and should be a consideration, but you should focus primarily on the type of interest, fixed or adjustable and on the length of the interest-free term as well as any prepayment penalties.

5. Learn the basics of adjustable versus fixed rate mortgages so you know what you're getting into. Interest-free loans do not include any payment on the principle, so at the end of the term, you still owe the same amount that you initially borrowed. If you chose an adjustable rate for the duration of the term, your interest payments may be higher than a standard fixed, 30-year mortgage.

Tips & Warnings

• Do your research and apply to at least four lenders in order to get the best deal possible.

• Don't get in over your head. Make sure you understand the particulars of an interest-free loan before your agree to one.

Resources

• Interest-Free Loan Information