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Learn how to Calculate Interest Only Loan Payments
What is your margin when the fixed rate is over?
This really depends on the lender and the product offered. Variable rate mortgages are based on a number of factors to asses the lenders particular risk profile for the program. What does this mean to you? It means once your initial fixed rate period is over you will be subject to the measured index of your mortgage product plus a pre-defined margin. For example, If you were to be coming out of a six month libor loan today your rate would be much lower than traditional fixed rate loans. The LIBOR index is currently around 1.30 so if you had a margin of (1.25%) you would have a current fully indexed rate of 2.55% for your mortgage! Of course, this rate will change monthly or annually so consult with a LIBOR mortgage professional to learn what libor programs are currently available.
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What Index will my Interest Rate be adjusted to?
Most "Interest Only" loans are tied to the LIBOR index - LIBOR is an abbreviation for "London Interbank Offered Rate," and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity - however some are also tied to the one year CMT. To learn more about the program specifics please consult a local mortgage professional by clicking here .
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Can I convert to a fixed rate?
Most "Interest Only" loans do not have fixed rate conversion options but product features and guidelines change daily. To learn more about the current program specifics please consult a local mortgage professional by clicking here .
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Are these Balloon Mortgages
No. Most "Interest Only" loans are not balloon type mortgages. Those that have a longer initial fixed period such as the 3,5,7 and 10 year programs will not have the note due and payable at the end of the fixed term. The mortgage will simply turn into a fully amortized loan thus your balance (after 5 years on a 5 year fixed interest only loan) will be amortized over the remaining 25 years as a normal 25 year "principal and interest" mortgage would except at an adjustable rate. To learn more please consult a local mortgage professional by clicking here .
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Do
Interest Only Loans have Prepayment
Penalties - If so, How do they work?
Most "Interest Only" loans do not have prepayment penalties however there are certain advantages to taken a prepayment penalty. The option will depend on your application profile and the lender you choose but you may be able to save up to 0.25% on the rate just by taking a prepayment penalty for the first 3 years. To learn more please consult a local mortgage professional by clicking here .
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