Interest Only Loans

Instead of paying principal and interest on your mortgage every month, an interest-only loan lets you defer principal payments during a specified period early in the loan term. That means your monthly payments will be lower during the interest-only period.*

Key benefits:

  • More borrowing power. Lower payments may help you qualify for a larger loan.
  • Flexibility. You can make principal payments when you want to build equity, or choose to put money into other investments instead.

Risks you should consider:

  • Higher financing cost overall. The loan amount on which you pay interest won’t decrease until you begin paying down the principal.
  • Negative equity. Even without principal payments, you can still build equity if the value of your home increases. If the value decreases, however, you could owe more than your home is worth, which is problematic if you intend to sell.

So do the benefits of interest-only loans outweigh the risks? It all depends on your financial situation and how you want to manage the investment in your home. Individual needs vary, so you should discuss your options with your financial advisor.