As mortgage rates edge higher, Interest Only loans look more appealing

With economic recovery well underway in the United States, interest rates on mortgages are beginning to climb. New mortgage applications are still holding strong with growth of 0.3% through the week ending Oct 22, showing excellent strength and resilience in the housing market despite prices that are well above the same time last year. However, the number of applications to refinance has diminished even more than it already has this quarter. 

Compared with the same week last year, refinance applications are down by 26%, according to the Mortgage Bankers Association report. Higher rates are of course going to mean it takes longer to pay off the loan and borrowers will be paying more interest over the course of the mortgage term. 

Joel Kan, the MBA’s associate vice president of economic and industry forecasting, said, “Mortgage rates increased again last week, as the 30-year fixed rate reached 3.30% and the 15-year fixed rate rose to 2.59% – the highest for both in eight months. The increase in rates triggered the fifth straight decrease in refinance activity to the slowest weekly pace since January 2020. Higher rates continue to reduce borrowers’ incentive to refinance.”

Although the interest rates are higher than they have been since early in 2021, they’re by no means restrictive. Compared to pre-pandemic borrowing, buyers and refinancers are paying the principal amount down at a faster rate on fixed rate mortgages. Adjustable-rate mortgages (ARMs) are sitting almost at par with the fixed rates, offering little reprieve. 

But one mortgage product looks even more attractive as interest rates climb. Mortgages with an interest-only period allow home buyers and refinance applicants an opportunity to skip principal payments for an introductory period. Here’s how it works and the benefits to expect.

Why Interest Only loans look appealing right now

For those borrowing for a new mortgage or refinancing to capitalize on a lower monthly payment, low interest rates are a great way to keep extra money liquid. But as rates increase, the loan balance isn’t paid down as quickly since the principal and interest payment together edge higher. For Interest Only mortgage loans, low payments on the loan amount keep your cash flow high when a traditional mortgage might make your other financial goals inaccessible. 

Products from MBANC put the interest-only loans of the past – the type that were predatory – in the rearview mirror. Instead, the interest-only mortgages available are about helping you achieve your personal finance goals. Your fluidity can be put to work earning you additional revenue through investments, or they can provide financial breathing space while you take on a new business venture or complete your professional education. 

Many lenders who offer interest-only loan terms have a balloon payment when it converts, making it difficult to ever get free of a financial burden hanging over your head. But MBANC’s 10-year Interest-Only loan products don’t have a balloon payment. At the end of ten years, they convert to a 30-year fixed rate mortgage with no need to reapply. 

In the past year, home values have increased nearly 20% across the United States. Although you don’t pay down the principal during the interest-only term, your home equity still increases as the market moves. Even if you sell the home at the end of the 10-year period, you’re very likely to still be ahead with your equity position. 

Get Approved for an Interest-Only Mortgage

Whether you’re self-employed, earn a living primarily as an investor, you’re an independent contractor, or you simply have aspirations for homeownership, MBANC is here to serve you. With products like 10-year Interest-Only mortgages that appeal to a wide variety of clients, our team works hard to get you approved for the home you deserve.