 |
|
Jumbo Mortgage Loans: Interest-only or fully amortizing?
Should I get interest only or fully amortizing jumbo mortgage loans?
Many borrowers obtaining a jumbo mortgage loan consider interest-only loans over fully amortizing loans. Interest-only jumbo mortgage loans can be a great tool to minimize your monthly payments. These loans are especially useful for borrowers who receive most of their compensation from bonus or commission income that is paid annually or quarterly instead of monthly.
Why is interest-only jumbo mortgage loans considered more risky?
Interest-only loans are usually about 1/8% to 1/4% higher in rate than fully amortizing loans because they are considered slightly riskier than fully amortizing loans. Even with that slight difference in rate, the payment on an interest-only loan is much lower during the interest-only period. Every interest-only loan begins with an interest-only term and then switches to a fully amortizing loan for the remainder of the term.
An Example:
A $900,000 5/1 ARM at 4.5% that is fully amortizing over 30 years would have a payment of $4,560.17 per month. A 5/1 ARM at 4.75% that is interest only would have a much lower payment of $3,562.50 which is a payment savings of $997.67 per month.
In this example, the principal balance of the amortizing loan would be reduced by about $12,250 the first year. The annual savings in monthly payments is about $12,000 the first year as well. So in the short term, there isn't much difference between obtaining an interest-only loan and paying $12,000 in principal once a year versus getting a fully amortizing loan.
How to qualify for an interest-only jumbo loan?
Qualifying for an interest-only jumbo loan is not easier than qualifying for a fully amortizing loan. Nearly every lender now requires that borrowers seeking an interest-only loan must qualify at the fully amortizing payment rate. In the above example, the borrower would not be qualified with a monthly payment of only $3,562.50 on the interest-only loan. Instead, underwriters now qualify borrowers for interest-only loans based on a fully amortizing payment at the higher of the current rate, the fully indexed rate or sometimes a rate even higher than that.
Most borrowers looking for interest-only jumbo loans select adjustable rate mortgages over fixed rates because they are seeking the lowest mortgage payment and the jumbo ARMs offer the lowest rates for 3, 5, 7 or 10 year periods. There are jumbo fixed rate interest-only loans available but the rates in 2009 are about 1% to 1.5% higher than the lowest 5/1 jumbo ARM rate.
Summary: Which is better?
Which is better - fully amortizing or interest-only? The answer completely depends on your personal financial situation including how you are compensated. To review what is best for your personal financial situation and for immediate exact rate quotes, contact us.
Finding the lowest Jumbo Mortgage Rates
We are committed to provide you with the right jumbo mortgage loan. Please check out some of the lowest jumbo mortgage rate in the country. If you'd like to talk to one of our jumbo mortgage loan experts, call directly at 877-868-2503.
To see the current conforming loan limits for your county and state, visit our free online calculator tool.If you have any question that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503.
Other relevent articles:
» Jumbo Mortgage Programs: Options and getting the right advice
Mortgage Products:
- 30 Year Fixed Mortgage Loan
- 30 Year Fixed Conventional
- 30 Year Fixed FHA
- 20 Year Fixed Conventional
- 15 Year Fixed Conventional
- 15 Year Fixed Jumbo
- 7/1 ARM Conventional
- 7/1 ARM Jumbo
- 5/1 ARM
- 5/1 ARM Jumbo
Call 1-877-868-2503 for any other mortgage rates.
Current Mortgage Rates:
Even a small difference in a mortgage rate can make a big difference in the size of a monthly mortgage payment and the overall cost of a mortgage loan.
Allow Total Mortgage to provide you with some of the lowest current mortgage rates and fees.
View Rate in Your State
Please select your state to view our lowest available current mortgage rates:
You may call us directly to talk to one of our expert Loan Officers at 877-868-2503.
Apply Now
Please complete the form below to receive a no-obligation quote for your mortgage loan.
Total Mortgage Blog
Total Mortgage has started the blog: "Mortgage Rates & Trends: Mortgage Blog from Total Mortgage". It provides insights into some of the lowest current mortgage rates for new purchase and refinance transactions.
Blog also offers news and updates on fixed rate mortgages, adjustable rate mortgage, FHA Home Loans, FHA Refinance, and Jumbo Mortgage rates across the country.
Current Mortgage Rates
Total Mortgage is nationally known for having the lowest current mortgage rates available. We not only offer some of the lowest current mortgage rates and fees in the country, but also an exceptional quality of service.
