| An interest only option mortgage loan is a mortgage | | | | dramatically and very quickly. |
| that only requires one to pay the interest portion of | | | | A negative amortization mortgage is generally done |
| ones mortgage payment. An interest only option is an | | | | where a buyer has a large amount of equity in their |
| attachment to another type of loan. Either a fixed rate | | | | home and they are willing to allow the mortgage |
| or an adjustable rate mortgage can have an interest | | | | balance to increase in order to substantially lower their |
| only option. | | | | payment. A Negative amortization loan is similar to an |
| The interest only option allows the appreciation of the | | | | interest only option in that the person is only paying |
| home to build equity instead of making payments to | | | | interest on the loan. The difference is that one is not |
| reduce the principal. For instance, after making | | | | paying enough interest to cover the actual interest |
| payments in a $300,000 home for 5 years one may | | | | cost of the mortgage. The interest that they are not |
| have a balance of $280,000. If the house appreciated | | | | paying is being added to the mortgage balance. The |
| to $320,000 one would now have $40,000 in equity. | | | | person will ultimately owe more on the home than the |
| An interest only option in the same scenario would | | | | balance when they initially began. |
| have a balance of $300,000 and $20,000 in equity. The | | | | The positive aspect is that the payment is substantially |
| difference is that the payment on the fixed rate | | | | lower than even an interest only mortgage. The |
| mortgage would be much higher than that of an | | | | negative is that you are actually increasing the balance |
| interest only as part of the payment is paying principal. | | | | of ones mortgage. This type of financing would be |
| With the interest only, one would have paid roughly | | | | used for a person who is planning on selling their home |
| $7,000 less in payments and would have a much | | | | in the next few years and would like a substantially |
| lower payment. | | | | lower payment in the mean time. This is only available |
| In this scenario the buyer is utilizing the appreciation of | | | | for a person with a large amount of equity in their |
| the house instead of their own money to earn equity. | | | | home. It is beneficial to a person who is going to retire |
| This is a good option in a very strong housing market | | | | in two or three years. |
| where the home values are increasing very | | | | |