News reports are again circulating about interest-only home loans, so we thought it was time to update you about the resurgence of this loan product.
Several years ago, during the housing crash, interest-only mortgages were considered to be the bane of the real estate world. Jump forward to today and you will see that these types of loans are starting to make a comeback. However, they aren’t the interest-only loans we’ve seen in the past. They’ve been revamped and reworked, and they are now offering would-be homebuyers more choice when it comes to buying a home.
What’s Changed with Interest-Only Mortgages?
Many in the field believe the new interest-only mortgages are much safer and far more responsible than the previous loans.
United Wholesale Mortgage recently announced that they would be offering interest-only mortgages through brokers, and that there are plenty of safety measures in place to prevent issues that happened with other lenders in the past. Borrowers will need to put down at least 20% on the home, which ensures that they have a significant investment in the property. In addition, borrowers who opt for an interest-only loan will need to have a FICO credit score of at least 720. Additionally, borrowers will need to qualify for the monthly mortgage payment that begins after the payment adjusts higher to include principal, not just qualify to make the interest-only payment.
The United Wholesale Mortgage interest-only mortgage begins as a five-year adjustable-rate. Since the interest rate can adjust higher after five years, depending on market rates, borrowers are underwritten at a higher interest rate to ensure that they can make the higher monthly payment. Borrowers are also required to start making principal payments after 10 years, if they still have the mortgage at that time.
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Are Interest-Only Mortgages Right for Everyone?
While many borrowers can benefit from an interest-only mortgage, most homebuyers will benefit more from a mortgage where they pay the principal over the entire term of the loan.
Interest-only mortgages are mostly suitable for high net worth individuals in the jumbo loan category, who use these mortgages as an overall financial strategy. Real estate investors can also benefit from interest-only mortgages in certain situations.
Whether you are considering a mainstream mortgage product or interest-only mortgage, we would appreciate the opportunity to show you how different mortgage products work in respect to your specific circumstance.