Minimizing monthly housing expenses is a common goal that is shared by most of us. Reducing the amount of your mortgage payment can have a dramatic impact on your total monthly outlay. The most common way to lower monthly loan payments is to seek out bank loans with low mortgage interest rates. Interest-only mortgage loans are one option that borrowers have at their disposal for lower rates. With every monthly payment on a standard mortgage loan, part of the payment is applied to the outstanding loan balance.

This is not the case with interest-only mortgages, where monthly payments are only used to cover interest costs. Compared to traditional mortgage loans, the combination of no loan amortization and lower rate translates to a lower payment.

To run some payment scenarios, you can find tools on the Internet (search ‘APR calculator‘). Since the loan balance is never reduced, how does a person pay off this type of loan? After a specified number of years, the borrower will have to make a balloon payment to pay off the entire loan. Problems with these loans could arise if mortgage loan rates down the road make refinancing difficult. You may have to approach your lender about the possibility of mortgage loan modification. Consult with a mortgage professional to determine if an interest-only loan is right for you.

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