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Monthly Interest-Only Payments

Mortgage Library: Ask a Mortgage Related Question: Answers: Monthly Interest-Only Payments

Question:

Hello,

I have a question regarding the monthly payments on a 10/1 Interest Only Libor. Here's my example:

Loan Amount: $665,000
Interest Rate: 5.975%
Interest Only Monthly Payment: $3,265

If I put an additional $1,250 towards the principal balance every single month, then will the monthly interest only payment reduce every month as well as the principal balance? I have received conflicting answers. People tell me, "no, the interest only payment will remain the same for the 1st 10 years that it's fixed". But other say, "yes, if you put additional towards the principal balance every month, then that will affect the balance, therefore, the monthly interest only payments will be reduced".

Please let me know the answer. Thanks.

T. C.
Las Vegas
Nevada

Answer:

T., it makes sense that you'd receive conflicting answers on how additional payments to principle would affect your monthly payments because there are many different ARM products. It all depends on how often the loan recasts. Some loans recast every year for the first ten years, some recast only after the fixed period. I don't know of any ten year ARMs that recast monthly. Some Option ARMs recast monthly, but not 10/1 ARMs.

Rick Lanicek
PrimeLending, A PlainsCapital Company
17950 Preston Rd Ste 50
Dallas, TX 75252-5759
(972) 705-9721
(800) 256-0817 Ext 202
Mobile (214) 552-6125
eFax (972) 692-7260


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