Mortgage interest rates are in a constant state of flux – weekly, daily, and even hourly. When you apply for a mortgage whether you buy a home or refinance, you’re typically afforded a grace period where you’re guaranteed the rate you’ve been pre-approved at. It’s great since mortgage rates can change a lot in the time it takes to close, and that could impact your monthly payment.
For many lenders, your rate lock period is for 30, 45, or 60 days, and it ensures that you won’t lose out on an advertised rate if interest starts to climb. Sounds pretty good, doesn’t it?
What’s even more beneficial to you as a home loan applicant is that you get the lower rate if rates fall. And if rates increase, your mortgage locks in the interest rate you were approved at.
Rate protection or rate lock isn’t a new thing for mortgage lenders to offer. But what MBANC offers with a 10-year Interest Only mortgage could definitely make you view getting a mortgage loan anywhere else differently.
What rate lock looks like with a 10-year Interest-Only mortgage
Interest-only mortgages have incredibly enticing perks. You can keep your monthly payment low by paying just the interest portion and keeping your principal amount unchanged – often even more competitively priced than renting but with the added benefit of rising home values due to inflation. They’re an excellent option for professionals who have rising income expectations in the near future, allowing homeownership sooner.
With a 10-year interest-only mortgage, consider another benefit: the period of time that you have a rate lock expires only at the end of the initial ten years. It would almost be like your mortgage approval is held over until the mortgage converts to a standard 30 year fixed mortgage.
Picture this. You apply for a 10-year interest-only mortgage and are approved today. Let’s assume your interest rate for discussion purposes is 4%. For a mortgage balance of $250,000, you’ll pay approximately $833 per month for the initial 10-year period which accounts for only the interest on the loan amount.
But what happens if the interest rates climb? Say they rise substantially in the next 10 years, doubling to 8%? That could put home affordability out the window if try to amortize $250,000 at the higher rate when it converts for the following 30 years.
That’s where the rate lock comes into play. Rather than converting to a 30-year mortgage at the market rate of 8%, you’re locked in at the 4% you were approved at. And should today’s competitive rates drop at the end of the 10-year interest-only period, it’s possible to lock in at the lower rate.
It makes financial sense for plenty of borrowers like those who have a rising income, a credit score of 700 and above, otherwise low debt-to-income ratio, and those who have substantial cash reserves. Interest-only mortgages are an excellent tool for certain clients looking for jumbo mortgages especially.
Find out more from MBANC
If you are self-employed or have a commission-based pay structure, you’re in the business of leveraging your liquid assets for gains, or you have rising income, a 10-year interest-only mortgage from MBANC should be something you consider. Learn more – contact MBANC today to find out how we can help you achieve your financial goals.