![]() Mortgage payments drop as you pay down principal.Lower initial payment during the interest-only period, helping you afford more home.7-year interest-only mortgage pros and cons Most people sell or refinance before or shortly after the fixed period of this loan. Those who might sell or refinance soon: According to the National Association of Realtors 2021 Profile of Home Buyers and Sellers, the average person stayed in their home just eight years. If you expect a large bonus or inheritance in the future, you could reduce your mortgage payment without refinancing. You only pay interest in the outstanding balance. But during months of lower income, you can choose the interest-only option.īuyers who expect a large sum of money soon: Unlike a 30-year fixed loan, making a large payment toward principal will reduce the amount you owe each month. An interest-only loan could help you afford the home you really want.īuyers with variable income: With a 7-year interest-only loan, you have the option to pay down principal when you’re able to. Here are individuals who might benefit:Ģ021 and early 2022 home shoppers: Mortgage rates and home prices have shot up like few times in history. ![]() ![]() They are not just to reduce your payment to afford more home, although that’s a good use case. Who are 7-year interest-only loans good for? With a few keystrokes, you can calculate about how much your interest-only loan payment would be. So a $500,000 loan amount at 6.5% would look like this: You don’t need an interest-only mortgage calculator to figure out your payment. How to calculate your 7-year interest-only payment The interest-only payment would be approximately $600 per month less than the payment for a 30-year fixed $640,000 loan with 20% down. **Does not include taxes, insurance, HOA, or other dues or fees. *Interest rates shown are for example purposes only and may not be currently available. Well, what if you only had to pay interest each month? Here’s the payment comparison on a few scenarios. With rates and home prices rising so quickly, you might find that you can’t afford the same home that you could a month ago. Most homebuyers choose an interest-only loan to reduce their monthly payment. Why do some homebuyers choose an interest-only loan? You can pay down principal if you’d like, but it’s not required. Then, payments will adjust so that you pay off the loan over the next 20 years.ĭuring the interest-only period, homeownership is much more affordable. When the interest-only period is up, it will turn into a fully-amortized loan.įor example, you could have a 7-year ARM with a 10-year interest-only period. The interest-only feature drops your required payment significantly. This is different than a “fully-amortized” mortgage, for which you pay principal and interest. However, it comes with an additional feature, known as an interest-only option.ĭuring the interest-only period, you’re required to pay just the interest due each month. Jump ↓ How does a 7-year interest-only ARM work?Ī 7-year interest-only adjustable-rate mortgage (ARM) comes with a fixed rate for seven years.
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