Question 1

What happens when the interest-only period ends?

Accepted Answer

The loan converts to fully amortizing payments. Your monthly payment increases 30-50% because you start paying principal plus interest over the remaining term.

Question 2

Can I make principal payments during the interest-only period?

Accepted Answer

Yes, most lenders allow extra principal payments without penalty during the IO period. Check your specific loan terms for prepayment restrictions.

Question 3

Do interest-only loans have higher rates than conventional mortgages?

Accepted Answer

Yes, expect rates 0.75-2% higher than conventional loans. Non-QM lenders charge more for the flexibility and reduced documentation requirements.

Question 4

Can I refinance before the interest-only period ends?

Accepted Answer

Usually yes, but watch for prepayment penalties. Many IO loans charge 3-5% if you refinance within the first 2-3 years.

Question 5

How much do I need for reserves with an interest-only loan?

Accepted Answer

Most lenders require 6-12 months of reserves based on the full principal and interest payment, not the lower interest-only amount.

Question 6

Are interest-only loans good for investment properties in Suisun City?

Accepted Answer

They can be if rental income exceeds the interest payment. DSCR loans often work better for pure investment plays, but IO helps with cash flow.

Interest-Only Loans in Suisun City: Lower Payments for Strategic Borrowers