Interest Only Mortgage
Interest only mortgage loans used to have a lower payment than a standard amortized loan. Why? Because the interest only loan was not a fully amortized loan product. However, all of this changed when the Frank Dodd rules went into affect. According to Frank Dodd all borrowers have to show they have the ability to repay the loan. All loans need to be a fully amortized loan product. The interest only loan product is not a fully amortized loan product. It is now considered a non-qualified mortgage. What does that mean? That means the interest rate on this product has since went way up. It also means that is normally no longer cost beneficial for a borrower to obtain an interest only loan even though they aren’t paying on the principal portion because the interest rate is much higher. Why are the interest rates high? If the loan product can not be bought by Fannie Mae or Freddie Mac on Wall Street then it is considered a high risk. It’s really that simple. Some lenders even charge origination fees and points on this loan product. Therefore, you might want to consider your traditional 30 year fixed loan product. The interest only loan product just isn’t what it was back in the early 2000’s.