If you’re searching for an affordable way to purchase a home, you may want to look into an interest-only mortgage. An interest-only mortgage allows homeowners to avoid paying down their principal balance for the first few years of homeownership. Instead of making payments toward the principal balance, new homeowners only have to make interest payments.

Read on to find out more about how interest-only mortgages work, who can qualify for them, and how to apply with Griffin Funding.

Borrowers who take out a traditional mortgage are required to begin making payments toward the principal balance of the loan plus interest from the moment their first mortgage payment is due. However, with an interest-only mortgage, borrowers only pay the interest on their home loan for a period that generally ranges from five to ten years. After this initial period has expired, payments are recalculated and borrowers begin paying down the principal amount.

At Griffin Funding, interest-only loans are part of our non-QM mortgage programs. These types of loans have more flexible qualification requirements when compared to traditional mortgages.

When you take out an interest-only mortgage, you will only have to pay interest on the loan for a predetermined amount of time. Generally, this interest-only period lasts for about five to ten years, depending on the terms set by your lender. During this initial term, you’re welcome to make payments towards the principal loan amount, but this isn’t required. If you can afford it, you might want to consider paying the principal on interest-only loan early because it can help reduce your debt.

After the interest-only period ends, you will begin paying down the principal balance until the remainder of the loan is paid. Keep in mind that your mortgage payments will increase once you’re past the interest-only portion of the loan terms, so you’ll need to plan accordingly. You do have the option to pay off the remaining balance in a lump sum or refinance your loan if you so wish.

Interest-only loans are typically structured as adjustable-rate mortgages (ARMs). This means the interest rate on your mortgage will be locked in for a certain timeframe—but, after that introductory period expires, your interest rate will change according to market conditions. While ARMs tend to offer a low introductory rate, be aware that your interest rate can fluctuate later in the life of your mortgage. In addition to ARM loans, Griffin Funding also offers interest only fixed rate mortgages either on a 40yr fixed term or a 30yr fixed term. For example:

• 30yr fixed rate with the first 10yrs being interest only, after 10yrs the loan reamortize to a 20yr fixed term at the same rate
• 40yr fixed rate with the first 10yrs being interest only, after 10yrs the loan reamortize to a 30yr fixed term at the same rate 

An interest-only mortgage starts out with a fixed interest rate. You’ll be locked into this interest rate through the interest-only term of the loan. Then, you will begin paying down the principal amount of the loan in addition to interest. And, since interest-only loans are typically structured as adjustable-rate mortgages, your interest rate will likely change based on the index and margin, which are determined by market conditions and the lender respectively.

In general, more people are able to qualify for our non-QM loan program compared to qualified mortgages (QMs). That’s because QMs have stricter qualification criteria and more stringent income verification standards. Non-QM loans, on the other hand, don’t rely on traditional income verification methods. This can make interest-only loans attractive prospects for real estate investors and other individuals whose income isn’t accurately reflected on tax returns, W-2s, and other income documents.

If you’re unsure whether or not you qualify for an interest-only mortgage, speak with one of our loan specialists today. Our team can advise you on whether an interest-only loan is the right fit for your situation. You can also submit an online application to find out if you qualify.