Interest only mortgage loans

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An Interest Only Mortgage allows a borrower to pay only the interest due on the monthly mortgage payment. So on a $300,000 loan amount with an interest rate of 7.5%, the regular monthly principal and interest payment would be $2,097.64. With an Interest Only Mortgage, with the same scenario as above, the monthly payment due would be $1875.00. This is only the interest due on the loan. The principal is never paid down.

What are the benefits of the Interest Only Mortgage?
It allows a borrower to qualify for more home. The borrower qualifies for the mortgage based on the interest only payment. This type of loan is appealing to the homeowner who wants to make the lowest payments possible on their home as a short term solution to a tight cash situation or wants to use all available cash for some other project. With a property that is appreciating in value the owner could have a substantial increase in equity even though the mortgage principal has not been reduced.

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