Question 1

What happens to my payment when the interest-only period ends?

Accepted Answer

Your payment jumps to include principal and interest. On a 10-year interest-only loan, the remaining 20 years compress the principal payoff. The new payment is typically 30–50% higher. You must refinance or sell before that date arrives.

Question 2

Do I build equity with an interest-only loan?

Accepted Answer

No. During the interest-only period, your payment covers only interest. The loan balance stays the same. Equity builds only after amortization begins or if your home appreciates. This is why an exit plan matters.

Question 3

What credit score do I need for an interest-only loan?

Accepted Answer

Most lenders require 700 FICO or higher. Some programs go as low as 680 with strong reserves and income. Interest-only is a specialty product, so credit standards are tighter than conventional.

Question 4

Can I refinance an interest-only loan before the period ends?

Accepted Answer

Yes. Refinancing is common—many borrowers lock in a fixed rate before the payment jump. You'll need current income verification and an appraisal. Rising rates can block refinancing, so don't assume it's always an option.

Question 5

Is an interest-only loan a good fit for a first-time homebuyer?

Accepted Answer

Rarely. Interest-only works best for investors and high-income professionals with irregular earnings. First-time buyers typically benefit from a conventional loan with predictable 30-year payments and equity buildup from day one.

Interest Only Loans in Livermore: Lower Payments, Strategic Flexibility