How does a 10 Year Interest Only 30 year fixed work?
I know interest is fixed for 10 years but what happens on the 11th.
- 1 decade agoFavorite Answer
For the first 10 years, the interest rate is fixed and you do not pay down principal, so if you had a $200,000 mortgage @ 6%, you would pay $1,000/month (200,000 * .06)/12 After the 10 years are up if becomes a regular 20 year mortage at that dates prevailing interest rate. The mortage is not meant to be held until maturity, and are useful for people not planning on staying in the house for a long time
- 1 decade ago
A 30 yr fixed rate loan with the first 10 yrs interest only is awesome! The entire loan interest rate is fixed for 30 years but you are only required to pay the interest during the first 10 years. In most cases, you are allowed without penalty to pay extra towards the principal. The 11th year, the amount of the prinicipal balance is "re-cast" at the same fixed interest rate for the remaining 20 years. If you never paid extra toward the principal, your payment will increase to include principal & interest for the remaining 20 years. It usually only adds up to a couple hundred bucks a month. If in 10 years, you're not earning another couple hundred bucks a month, well? I know I am making more now than I did 10 years ago by far. Furthermore, if you choose to pay down the principal during the first 10 years, it is possible that you will pay it off quicker than a standard 30 yr fixed prinicipal and interest loan. Read the fine print. Ask questions. These are great loans on the market right now. They provide the flexibility of interest only payments for 10 years without adding to your principal (like some ARM's). In 10 years, I would be quite surprised if interest rates were lower than they are now. Furthermore, you can always refinance...Source(s): CA Realtor and Loan officer
- 1 decade ago
I think you have the wrong idea. Mostly seen in mortgages, a 10 year interest only, 30 year fixed allows only interest payments during the first 10 years. After that, the payments include interest and principal payment. This is usually used by banks to allow customers to borrow more than they can afford. The interest only payments are usually manageable, but the other 20 years, the payments can sometimes be double.