Interest-Only Mortgages
Lower initial payments by paying only interest for a set period — ideal for cash-flow optimization and strategic borrowing.
Program Overview
An interest-only mortgage allows you to pay only the interest on your loan for an initial period (typically 5–10 years), after which the loan converts to fully amortizing payments including both principal and interest. During the interest-only period, your monthly payment is significantly lower. This structure is popular with investors, high-income professionals with variable incomes, and borrowers who want maximum cash flow flexibility.
Who Is This Loan For?
- ✓ Real estate investors maximizing cash flow
- ✓ High-income earners with variable compensation
- ✓ Borrowers who plan to sell or refinance before the I/O period ends
- ✓ Financially sophisticated borrowers managing cash flow strategically
Key Benefits
Lower Initial Payments
Pay only interest — monthly payments can be 20–40% lower than fully amortizing.
Cash Flow Flexibility
Freed-up cash can be invested, saved, or used for other purposes.
Optional Principal Payments
You can still make principal payments voluntarily during the I/O period.
Available Across Programs
Available in conventional, jumbo, DSCR, and non-QM programs.
Qualification at a Glance
General Requirements
- Credit score 700+ for most I/O programs
- Down payment 20–30%
- Qualification often based on fully amortized payment, not I/O payment
- Reserves required
- Available for various property types
Advantages
- ✓ Significantly lower initial payments
- ✓ Cash flow flexibility
- ✓ Voluntary principal payments accepted
- ✓ Popular for investor financing
- ✓ Multiple program options
Tradeoffs to Consider
- ↔ No equity built during I/O period (unless making voluntary payments)
- ↔ Payment increases after I/O period ends
- ↔ Higher rates than non-I/O versions
- ↔ Not building equity as fast
- ↔ More complex to understand
Common Scenarios
Investor Maximizing Cash Flow
An investor purchases a rental property with a DSCR interest-only loan. The lower payment improves monthly cash flow by $400/month compared to a fully amortizing option.
Executive with Bonus-Heavy Compensation
A sales executive uses interest-only payments during the year and applies annual bonuses as lump-sum principal payments — maintaining low monthly costs while still paying down the loan.
Documents Typically Needed
- Standard documentation for the chosen program
- Adequate reserve documentation
- Property appraisal
Frequently Asked Questions
Your loan converts to fully amortizing payments over the remaining term. Because you now have to pay both principal and interest over fewer years, the payment will be higher than if you had been amortizing from day one.
Broker Disclosure: Scout Financial Group Inc DBA Airus Lending is a licensed mortgage broker (NMLS #2187418) and does not make loans or credit decisions. Airus Lending works with multiple wholesale lenders to help borrowers compare available loan options. Final approval depends on the lender, automated underwriting findings, documentation, state requirements, and overall borrower profile. Not all applicants will qualify.