Interest-only loans are finally becoming competitive enough to make them a viable option for borrowers seeking payment relief.
Interest-only loans are NOT a good option if borrowers end up with a 1% higher rate. But now that rate spread is closer to 3/8% for qualified borrowers.
A $500,000 interest-only loan at 6.875% has a payment of $2,865. That same loan fully amortized at 6.5% has a payment of $3,160.
NOTE: Many lenders use the same rate for the amortized loan as they do for the interest-only loan in their marketing. But that is misleading, as there is always a rate-premium for interest-only.
Despite the rate premium, interest-only loans remain an excellent option for many borrowers seeking payment relief.
- Substantial payment savings
- Fixed interest rate for 40 years (10-year I/O; 30-year amortization after that)
- Less risky than Adjustable-Rate Mortgages that are only temporarily fixed (rates could easily be in the double digits in five years, given America’s fiscal woes)
- Loan re-amortizes immediately when principal is paid down
- Can borrow up to 85% LTV with no PMI
Who takes these loans? Business owners, commission salespeople, anyone who understands ARM risks, and borrowers on fixed incomes who expect large bonuses in the future.
Beware of Slimy Marketing, as It Is Getting Slimier…
EVERY time we close a loan, we have to warn borrowers about misleading marketing from insurance companies, home-warranty firms, life insurance companies, and lenders that pretend to be affiliated with us or our mortgage bank.
These slimy firms use our name in their marketing and employ very careful wording to imply they are closely affiliated with us.
Borrowers reach out to us weekly (if not daily) to confirm whether “such and such offer” is from us – and we have to tell them no every time (we NEVER market products to our clients).
I was just asked in fact by an old friend who recently closed a VA loan with us; another lender pretending to be us immediately tried to refinance them out of the loan (into an inferior loan, making it worse).
It is getting worse lately because so many industries have slowed, and companies are desperate. In addition, NONE of the offers from companies that do this are ever competitive, too (shockingly).
Tech companies we have never heard of are even getting into the act – reaching out to agents we work with – while pretending to be affiliated with us.
An agent recently received this text, for example: “…we are working with JVM Lending and want to make sure you join us THIS Thursday 06.04 at 12:30 PM CT for our Live Q&A!”
If any agent reading this blog gets a similar text, please be aware that the company is not affiliated with us, and we are not working with them.
Beware of slimy marketing.
