When buying real estate, it can feel like there are as many financing options as properties in a given area. Choosing the right one can be a challenge. Interest-only mortgages are great for investment properties. But what is an interest-only mortgage loan? This loan is one in which you only make interest payments (not mortgage payments) for the first period of your loan term. But that only tells part of the story.
At mbanc, we specialize in self-employed mortgage solutions and have helped people capitalize on real estate investment opportunities to achieve their American Dream for years. Read our blog to learn more about this excellent financing option:
What is an Interest-Only Mortgage Loan?
An interest-only mortgage is a loan wherein you only pay the interest for a certain period, usually five, seven, or ten years, making initial monthly payments smaller. Once the interest-only phase ends, you will then begin paying the interest and principal.
The principal is often repaid in either a lump sum at a specified date or subsequent payments, depending on the loan terms. Benefits of interest-only mortgages include:
- Freeing up cash to capitalize on an unmissable investment opportunity
- Initial lower monthly payments
- The ability to afford a more expensive home
- Being able to pay this loan off faster than a conventional loan
- Increased cash flow
- Deferring large payments to a later period when their income will be higher
- Lower mortgage rates (though they can start to vary after the initial period ends)
After the interest-only period expires, you have the option of:
- Paying off the loan balance in one lump sum (also called a balloon payment)
- Refinancing the loan for better terms and potentially lower interest payments
- Paying off the balance in monthly payments
“In the current market, you can buy a home with an interest-only mortgage, sell it before paying any principal payments, and enjoy a profit. Home prices are increasing, so this is an excellent way to capitalize on capital appreciation. As rates climb along with home prices, these types of loans become a more affordable choice that can provide tax benefits to borrowers.” – Mayer Dallal, mbanc Managing Director
When Should You Get an Interest-Only Mortgage Loan?
Understanding when you should pursue this financing is also an essential part of answering the question, What is an interest-only mortgage loan?
Several situations make an interest-only mortgage a great option, like first-time home buyers who want to keep monthly payments to a minimum, buyers who move frequently, or people who are interested in purchasing a second home.
But this type of financing is especially great for those purchasing a home as an investment. Whether it is short-term or long-term, this can be a great option. If you are investing in a property to create rental income, an interest-only loan is a great financing solution.
“Imagine you want to purchase a property to use as a short-term rental. While this is a great investment opportunity and an excellent source of passive income, setting it up will take some time. From creating a business plan to finding clientele to finding a property manager, you will not realize an ROI right away. With an interest-only loan, you can finance a short-term rental property so you don’t have to miss out on an unbelievable opportunity and only have to make payments when your rental is up and running. And the best part? By that time, it will literally be paying for itself.” – Desh Weragoda, mbanc CTO
Apply for an Interest-Only Mortgage Loan Today
An interest-only mortgage loan is a financing product that could be a great option for those interested in purchasing an investment property. At mbanc, we offer interest-only loans that cater to self-made borrowers like you and enable you to achieve the financial freedom the American Dream is built on.
Visit our Interest-Only Mortgage Loan Page today to apply for a loan to purchase or refinance a property and learn more about the opportunities it will make available to you.