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Interest Only Mortgage Rates

Compare Interest Only Mortgage Rates and Lenders

Review current interest only mortgage rates for June 23, 2018 and get personalized mortgage quotes from top lenders

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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. The actual payment obligation will be greater if taxes and insurance are included. Click here for more information on rates and product details.
 

Mortgage Rates by Loan Product

Loan
Current Rate
Last Week
Trend
4.375%
4.500%
3.875%
3.875%
3.875%
3.875%
3.750%
3.875%
3.875%
3.875%
4.500%
4.500%
4.625%
4.750%

Mortgage Rate Report

Saturday, June 23, 2018

Mortgage rates dipped slightly this week after rising in response to the Federal Reserve's decision to raise interest rates at its June meeting last week.  In its statement, the Fed pointed to a robust labor market, improving household spending, sustained business investment and accelerating inflation to support a 0.250% increase in the target Fed Funds rate to 1.750% to 2.000%.  The Fed's removal of measured language from its statement as well as highly positive comments on the economy by Fed Chair Jerome Powell also improved the probability of two more increases rate moves this year and in 2019 as well.

Although June's quarter point rate surprised few, there were mixed opinions prior to the meeting over the number of increases to expect for the remainder of 2018, with moderate wage growth, lower than targeted inflation and potential international trade wars providing rationale for the Fed to pause or slow future rate hikes.  Following meeting, however, there is greater certainty regarding the Fed's apporach for the second half of 2018.

While the increase in interest rates and the Fed's more hawkish outlook drove mortgage rates higher across the board last week, in good news for borrowers, we saw rates pullback for several programs this week.  It appears that by effectively telegraphing its intentions, the Fed brought increased stability to the mortgage market, which positively impacted rates for certain programs.

The mortgage rate for a 30 year fixed rate loan slid 0.125% higher to 4.375% while the rate for a 15 year fixed rate mortgage remained at 3.875%.  The interest rate on a 5/1 adjustable rate mortgage (ARM) was also steady at 3.875%.  FHA mortgage rates stayed put at 3.875%, matching VA mortgage rates which held at 3.875%, with both programs remaining attractive to borrowers focused on low or no down payment programs, especially first time home buyers.  Jumbo mortgage rates were stable 4.500% while non-owner occupied mortgage rates moved 0.125% lower to 4.625%.

Although the Fed's move to raise rates was widely expected, the mortgage market reaction to the news was better than expected.  Rates increased less than expected initially and dropped slightly this week.  We have seen rates gradually move higher this year in response to the Fed's forecast and expectations for future rate hikes were reinforced this week.  While interest rates are impossible to predict, prospective borrowers looking to buy a home or refinance their mortgage may be able to lock in a lower rate by acting sooner rather than later.  As lenders react differently to shifting market conditions, we have also seen the variation in mortgage rate pricing grow recently, which means borrowers benefit more by shopping multiple lenders.

Because rates fluctuate constantly, we continue to actively monitor the market for new developments.  Borrowers should check the FREEandCLEAR mortgage rate tables regularly to review personalized, updated mortgage rates for lenders in their area.  Our rate tables are free to use and require no personal information.

Why Select an Interest Only Mortgage

1

Lowest Initial Monthly Payment.

With an interest only mortgage you pay only interest and no principal during the for the first 3, 5, 7 or 10 years of the loan, which is called the interest only period. Additionally, your interest rate is fixed and does not change during the interest only period. Plus, interest only mortgage rates tend to be lower than fixed mortgage rates, depending on the length of the interest only period.  Because you are not paying principal during the interest only period, your monthly payment is lower than the payment for an amortizing loan such as a fixed rate mortgage or an adjustable rate mortgage (ARM), when the borrower pays both principal and interest. The flipside is that at the end of the interest only period, your payment increases because your are required to start paying both principal and interest for the remainder of the loan term, which is usually 30 years. Plus, your interest rate can potentially increase during this period of the loan which would cause your payment to go up even more.

2

Larger Mortgage Amount.

The lower initial monthly payment provided by an interest only mortgage enables borrowers to afford a higher loan amount and buy more home. Being able to afford for a larger mortgage is one of the main benefits of an interest only mortgage. Borrowers who are enticed by the lower payment and higher mortgage amount offered by an interest only mortgage should also be aware of the possible payment shock in the future. Borrowers need to make sure that they can afford their monthly payment both at the beginning of the mortgage and over time when their payment is highly likely to increase.

3

Pay Down Principal on Your Terms.

An interest only mortgage enables borrowers to pay down principal based on their schedule as opposed to on a scheduled monthly basis like with a fixed rate mortgage or ARM. Borrowers can elect to pay down principal during the interest only period of the loan, even though they are not required to. When you pay down your principal mortgage balance during the interest only period, your required monthly payment also goes down. The flexibility to pay down principal when you want to makes interest only mortgages well suited for individuals who earn a modest monthly salary but a significant annual bonus. Borrowers in this position benefit from the lower monthly mortgage payments but can use a portion of their bonus to pay down their principal loan balance.

4

Your Are Going to Own Your Home for a Shorter Time Period.

If you know that you are only going to own your home for the length of the interest only period, then an interest only mortgage may be the right option for you. That way you benefit from the lower monthly mortgage payment during the initial interest only period but you are not exposed to an increase in monthly payment and possibly interest rate at the end of the interest only period when the loan starts to amortize. Keep in mind that with an interest only mortgage, you do not pay down your loan balance during the interest only period and therefore build no equity in your home unless your property value increases.

Why Borrowers Compare Interest Only Mortgage Rates on FREEandCLEAR

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More FREEandCLEAR Mortgage Resources

Mortgage Calculators

Interest Only Mortgage Calculator

Our Interest Only Mortgage Calculator enables you to determine your initial monthly payment and worst case scenario for an Interest Only Mortgage using current interest rates

Programs

Interest Only Mortgage Overview

Review our comprehensive overview of how an interest only mortgage works including key loan program terms

Mortgage Guides

Downside of an Interest Only Mortgage

Interest only mortgages are the riskiest type of mortgage. Borrowers should review the risks of an interest only mortgage to make sure they understand the serious downsides

Mortgage Expert Insights

What Mortgage Program is Right for Me?

Review the pros and cons of the three main types of mortgages (fixed rate, adjustable rate (ARM) and interest only) to select the mortgage type that is right for you

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