Orange County Information Center - General Questions

Can someone provide me with some information regarding loans? Originally, I was considering a 30 year fixed mortgage loan. However, I heard that a 30 year fixed, 10 year interest only mortgage loan is a wiser choice. If I use a 30 year fixed, 10 year interest only loan, can I still make voluntary principal payments during the interest only period? If so, what are the consequences of it (i.e., does the loan period decrease? is the interest re-calculated according to a reduced principal balance?)?

Whether you go with an interest-only loan or a fully-amortized loan, the primary factor should be whether you can afford the monthly payments. The advantage of getting an interest-only loan is that your monthly payments will be smaller. The risk is that if choose an interest-only loan and you go to re-sell the property and it has decreased in value, you will not have paid down any of the principal and therefore will have to come up with cash at closing to sell your home. Interest-only loans aren't bad, they just require a little more thought and planning to make sure it's really the best option for you.

You are correct about paying on the principal on an interest-only loan. If you choose an interest-only loan, you can still make payments towards the principal. When you make payments on the principal, your interest is re-calculated based on the lower principal amount.

I hope this helps!

Warmest Regards,

Amanda Wheeland
Orange County Real Estate Advisor

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