An interest only loan is a mortgage loan that does not require any repayment of principal for a predetermined period of time. This interest only feature is extremely popular on adjustable rate loan programs such as the 3/1 ARM and 5/1 ARM. For example, a 5/1 ARM with an interest only feature would have an interest rate that is fixed for the first 5 years and required only interest payments for the first 5 years.

Opting for a loan with an interest only feature can reduce your monthly payment by over 20% over the same loan without it! Many clients like this feature because it allows them the flexibility to repay principal as it is most appropriate for their financial situation. Money that would normally go towards repaying principal can now be added to credit card payments to pay down these high interest balances faster. We also recommend contacting a financial planner to discuss putting this additional savings toward accelerating your retirement savings. Let us help you determine if an interest only loan makes sense for you.