Capital Line Funding Group

Interest Only Mortgage (IO)

An ‘interest only’ loan is one in which the monthly mortgage payment pays just the ‘interest’ due on a loan.

The payment does not include a portion for repayment of principal. Interest only loans, then, do not amortize; these IO do not ‘kill itself’ by liquidating each month a portion of the principal balance.

Only Loans have a fixed and definite time period. In home loans these fixed periods may be 3, 5, 7, or 10 years.

During the Interest Only period, the loan balance remains unchanged. A loan that is interest-only during the term specified obviously does not amortize. At the end of the term, a balance owing on the loan would be the same loan amount as it was at the beginning of the loan.

A mortgage is “interest-only” if the scheduled monthly mortgage payment-the payment the borrower is required to make-consists of interest only. The option to pay interest only lasts for a specified period, usually 5-to 10 years. Borrowers have the right to pay more than interest if they want to.

If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal. The result is that the loan balance will remain unchanged.

Interest Only Mortgage Example

Example of an Interest Only Mortgage Example of a Fully Amortized Mortgage
Loan Term: 30 year loan 30 year loan
Loan Amount: $100,000 $100,000
Interest Rate: 6.25% 6.25%
Payment: $520.83 $4615.72

If the borrower exercises the interest-only option every month during the interest-only period, the payment will not include any repayment of principal.

Location: California / Hawaii
Property Type(s): Single Family Residence, Extended Single Family Resident (1-4 Units)
Loan Term: 3 Year, 5 Year, 7 Year, 10 Year
Loan Type: Interest only
Occupancy Type(s) Primary Residence, Vacation Home, Investment Property

Capital Line Funding Group can be reached at (858) 812-2063. Capital Line is a - a premier provider of both Residential Financing and Commercial Financing across the United States.

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