Interest-Only Loans

Is an interest-only loan right for you?

With an interest-only loan, your payment covers just the interest for a set period, often 5 to 10 years. You're not paying down the balance during that time, which keeps the payment lower. After the interest-only period, the loan switches to regular payments of principal and interest over the remaining term.

Who it's best for

• Real estate investors maximizing monthly cash flow, often paired with a DSCR loan.
• Borrowers with uneven income such as commissions or bonuses, who prefer to pay down principal on their own schedule.
• High-balance and jumbo buyers who want to keep more cash working elsewhere.
• Short-to-medium holds when you expect to sell or refinance before the interest-only period ends.

Advantages

• Lower initial payment. Only interest is due during the interest-only period.
• Cash-flow flexibility. Extra principal payments are usually allowed whenever you choose.
• Can help a rental qualify. A lower payment can improve a DSCR ratio on some programs.

Things to consider

You don't build equity through payments during the interest-only period, so equity depends on home values and any extra payments you make. When the interest-only period ends, the payment rises, sometimes significantly, because principal is repaid over fewer years. Interest-only loans are typically Non-QM or jumbo products, so down payment, credit, and reserve requirements are usually higher than a standard loan. We'll show you both payments side by side before you decide.