As of 2015, several lenders offer interest-only mortgages, including United Wholesale Mortgage of Troy, Michigan; EverBank Financial Corporation of Jacksonville, Florida; and Stonegate Mortgage of Indianapolis, Indiana. However, the credit requirements for such mortgages are higher than usual, according to Bloomberg Business and MarketWatch.Continue Reading
Other lenders, such as Ethos Lending, the mortgage arm of Fenway Summer, plan to offer these products, which require mortgagors to afford long-term payments and bear the risk of increased payments as a result of annual interest rate hikes. Despite these risks, the increased demand for interest-only products has led to several small community lenders and national lenders such as EverBank to offer these products, according to Bloomberg Business.
Lender safeguards and regulations that cover these products include a down payment of up to 30 percent of the loan. Other protections that lenders take include principal prepayment provisions and higher interest rates, according to MarketWatch.
Interest-only mortgages offer lower monthly payments and unique amortization schedules because loan servicers and lenders only collect payments that do not have a principal contribution, explains MarketWatch. However, these unconventional loans are blamed for contributing to the destabilization that triggered the subprime mortgage crisis and subsequent foreclosures in the United States.
Consequently, although lenders such as United Wholesale Mortgage plan to expand access to these products, borrowers face stringent qualification criteria. These robust standards and measures include such qualities as a credit score of over 720, a 20 percent down payment and income-capped payments, as Bloomberg Business reports.Learn more about Credit & Lending