Alert Notification Icon

Learn the ins and outs of fraud prevention with our Fraud Prevention Center.

Alert Notification Icon

Learn the ins and outs of fraud prevention with our Fraud Prevention Center.

What is an interest-only loan?

All loans have two parts: The “principal”, which is the amount of money that you’re borrowing, and the “interest”, which is the amount of money charged by the lender. Interest-only loans are most commonly used for mortgages. For example, if you borrow $400,000 at a rate of 6% for 30 years, your monthly interest payment would be $1,919.50 and your monthly principal payment would be $478.70. Mortgage payments are normally principal plus interest; in this case $2,398.20.

An interest-only loan allows you to make monthly payments of only the interest for a specific period of time without the principal (although you can always make extra principal payments). The advantage of an interest-only loan is a lower payment. The disadvantage is your loan amount will not go down with each payment, since the principal amount remains unpaid.

Once the interest-only payments end, you will have higher payments for the interest plus principal. You can also refinance the loan or pay it off in full. However, since home prices fluctuate there is a risk that you might owe more on your loan than your house is worth.

Many people with higher income prefer the lower payments because they can use the money that they would normally pay toward principal for investments or other purposes. People with fluctuating income also like interest-only loans because they can make the interest payment when they’re short of funds, and pay down the principal when they have more money like a bonus or commission payment.

Interest-only mortgages are not for everyone, so you should carefully consider if it’s right for you. Contact a mortgage expert to determine the right mortgage for your specific needs.

Contact us for personalized assistance

Icon Browsers

Secure Message

Already a member? Send us a secure Message through Online or Mobile Banking. Just Login with your existing Login ID and Password.

Live Chat

Chat

Monday – Friday:
9 AM – 5 PM PT
Saturday: 10 AM – 3 PM PT
Sunday: Closed
Chat

Icon Desktop Computer

Virtual Branch

Drop in during business hours or schedule an appointment to meet on Zoom
View options

The owner of this website has made a commitment to accessibility and inclusion, please report any problems that you encounter using the contact form on this website. This site uses the WP ADA Compliance Check plugin to enhance accessibility.