how does an interest only loan work?

Question

Specifically, if there is an interest only period and I make principal contributions, does my interest only payment go down or does my maturity date arrive earlier?

Answer 1

An interest only loan, means your payment is only paying the interest, YOU ARE NOT PAYING ANY OF YOUR DEBT>

You have to pay interest & principle payments to make the loan amount go down.

If you sign up for an interest only loan, AND if the contract allows you to make principle payments as well, AND if you do make extra payments for principle, Part of the interest payment will revert to principle payment, (little at first, but grows with more principle payments made) and at your maturity date, you will owe less than you borrowed, your required payment will not have dropped up to this point, but because you made principle payments as well...part of your interest payments were credited as Principle payments.

At Maturity date, you renegotiate the interest and principle payments on the amount owing at that time.

Answer 2

If you pay more than the minimum due, the extra still goes towards the interest. You need to call the Mortgage Co. and ask how to apply your pmt. towards principle.