The Interest-Only ARM has a fixed annual interest rate for an initial period and the monthly payments consist of only interest, and not principal, for a fixed period of time. After the fixed period has ended, the monthly payments will increase to include full principal and interest. The annual interest rate adjusts every six months or annually after the fixed initial period expires.

Lower initial annual interest rate and interest-only payments for a fixed initial period compared to a fixed-rate mortgage loan for a comparable amount. This makes the Interest-Only ARM easier on your pocketbook during the initial fixed period compared to a fixed rate mortgage for the same amount. It also means that you might qualify for a larger loan amount. A popular program for those who expect to own their property for a short period of time.

• 30 Year Fixed 10/20 Interest Only (10 year Interest Only program at a fixed 30 year rate)
• 3/1 ARM Interest Only
• 5/1 ARM Interest Only
• 7/1 ARM Interest Only
• 10/1 ARM Interest Only

• More buying power. Lower payments may help you qualify for a larger loan.
• Flexibility. You can make principal payments when you want to build equity, or choose to put money into other investments instead.

• Higher financing cost overall. The loan amount on which you pay interest won’t decrease until you begin paying down the principal.
• Higher Interest Rate. Annual interest rates may be slightly higher than comparable principal-and-interest loans.
• Negative equity. Even without principal payments, you can still build equity if the value of your home increases. If the value decreases, however, you could owe more than your home is worth, which is problematic if you intend to sell.