Differences between a traditional ARM mortgage and a 10-year Interest-Only mortgage

Differences between a traditional ARM mortgage and a 10-year Interest-Only mortgage

Differences between a traditional ARM mortgage and a 10-year Interest-Only mortgage

Buying a home has its challenges, from hoping your offer is the winning bid and arranging a move to selling your current home. An area where it doesn’t have to be complicated is securing a mortgage. Whether you’re a business owner, an investor, an independent contractor, or you earn income traditionally, options exist that can make your home loan affordable. 

Two products that MBANC offers might be suitable for you: adjustable-rate mortgages (ARMs) and 10-year interest-only mortgages. Truth be told, there are a lot of similarities between the two, but key differences might make one more attractive than the other. Here’s what you need to know.

Key components of a traditional ARM mortgage

ARMs are rather common on the mortgage market today. They take advantage of historically low interest rates that can help keep your monthly payment lower than a similar term on a fixed rate mortgage. The mortgage rate is variable according to changes in the market rather than having a set rate for the period of time it’s amortized over. While you pay the interest and principal in a single payment, the payment amount changes then the interest rate changes. 

The interest rate can and does change during the loan term. Typically, the current adjustable rate is lower than an available fixed rate to make it attractive, but the risk is that interest rates will increase. There is a cap set on an ARM to prevent it from rising to a point of unaffordability. So, if the interest rate falls, your payments decrease without having to refinance, but your payments may also increase if the rates climb. 

How a 10-year interest-only
mortgage is structured

Like an ARM, MBANC offers 10-year interest-only loans with a fluctuating interest rate. An interest-only term means literally just that – you’re only paying the interest payments during the first ten years of the loan rather than interest and principal payments. During the initial loan term, your principal amount remains constant and you’re aren’t building home equity aside from inflation. 

Once the 10-year interest-only period is up, the mortgage converts into a traditional 30 year fixed mortgage.  

How does an interest-only mortgage help?

Essentially, an interest-only mortgage adds ten years of flexibility to a traditional ARM mortgage. Of course, it keeps your payments much lower and allows you to use your cash flow for other purposes, whether you are buying a home while finishing your education or you’re looking to invest in a budding market. 

There are even more benefits to an interest-only mortgage from MBANC. Since Fannie Mae and Freddie Mac won’t buy non-conforming loans, this type of mortgage from a private lender like MBANC can help you buy a home that you might not otherwise qualify for. While you’re not paying down the mortgage balance itself, you’re still building equity as the property value increases from inflation.

Qualifying for a 10-year interest-only mortgage at MBANC is similar to any other application. You’ll need a good credit score and current or expected income that can support the payments, whether it’s with traditional documentation or 1099s or bank statements. Interested in learning more? Contact MBANC today to find out if one of our 10-year interest-only mortgages is right for you. 

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