if you do a 5year interest only mortgage is the rate locked in?

Question

im not sure if the 5year interest only is subject to ARM

Answer 1

Read your contract. It will tell you.

Answer 2

As the first poster said, it depends on your contract.

However, it is understood that typically 5 year interest only ARM (and other ARM) loans offer a fixed interest rate for the first 5 years and adjusting the rate thereafter (possibly upward but never lower than the originally agreed rate), depending on the market condition.

Furthermore, as the "interest only" part states, you are not required to pay down the principle of the loan. You are only paying the interest on the money you are borrowing and not the actual amount you owe. After 5 years of this, you have only paid the interest but the principle stays the same.

The advantage, of course, in 5 year ARM mortgages is that they offer lower interest rates than fixed rate mortgages. If you plan on staying at your house for only 5 year and/or refinancing before the end of the 5 year period, then you will be saving a lot of money on interest payment. This applies to other ARM mortgages with different periods.

Answer 3

Interest only is the WORST mortgage you can get into, and yes after the 5 years it will go up they have to make up the money they lost for those 5 years. Add to that you home has depreciated and you have not added any payment to the principle no doubt you are out of equity with todays market and will find it hard to refinance to a fixed rate without a substantial downpayment. Hope you have the available income to endure the substantial increase that will come when the loan resets

Answer 4

I'm assuming you did a 5/1 ARM. They were real popular the last few years. They are fixed for 5 yrs and then adjust afterwards. You will either need to sell or refi before that 5 yrs is up. It's also to check to see if you have a prepayment penalty before you sell or refi.

It's a great loan for people that are only looking to stay in that home a few years or credit building to refi and get a better loan. Rates were lower and payments are about 5% less than a amm. loan would be.

Your princ. amount will be the same in 5 yrs but that doesn't mean you don't have equity like someone else had said. If you are in a strong market you would have gained equity in the appreciation in your home. The national appreciation is between 3-5%. So even if you are only paying interest you are still gaining equity which makes it better than renting.

Answer 5

It is only locked in IF you have a fixed rate. The interest only mortgage means you pay less per month, but NONE of it goes to the principle of the loan, only the interest. This is really only good for people who plan to stay in a home for just a couple of years to get cheaper mortgage payment. Then, you don't build any equity so it is very similar to renting.

Answer 6

if youre in a fixed rate then you pay that rate for the set amount of years