Interest Only I/O mortgages in a very popular way to puchase or refinance mortgage debt.  With an I/O program borrowers have the ability to pay only the interest thats due on the principle balance for a predetermined period of time.  Ant amount paid in excess of this would go directly to the principle balance of the mortgage.  There are several reasons and strategies to implement an interest only mortgage.

In many cases we will examine the benefits of I/O when looking at a customers current debt load.  You may be an I/O candidate if you have non tax deductible debt on autos or credit cards.  You may be an I/O candidate if you are financing with a piggy back 2nd mortgage.   It just makes sense to conserve and pay as little on your primary mortgage when you have a 2nd mortgage at a higher rate.  A typical suggestion would be to offer a client in such a situation a 30 year fixed rate loan with a 10 year interest only period.  Structuring a loan as such would allow you to build equity in your home faster by using the money you would be putting towards the principle on the first mortgage towards the 2nd until it is paid off.

I/O programs are popular with those buyers who commonly have fluctuations in income, or have a definite plan for an increase in income.  I/O are used when you are attempting to qualify for a home that would't work under acceptible debt ratio guidelines. 

The decision to use an I/O program should be an informed one.  One of the reasons our current market is seeing a huge increase in forclosures is partly due in fact to I/O mortgages.  Individuals who choose a 3 to 5 year I/O program at the end of the term will run into a much larger mortgage payment that they will have a hard time making.  I/O programs in a flat or down housing market can create a situation where an individual may attempt to refinance and there is not sufficient equity.  Worse yet, many forclosures are occuring because the interest only period has ended, and the rates on a new I/O program are currently 2% higher than (on top of this now fully amortizing!) what they were when they purchased the home.  Some homeowners in this situation have to refinance or sell the home.

Interest Only Mortgages

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