Learn More about Canadian Interest Only Mortgages

An interest only mortgage loan will require ‘interest only’ monthly payments rather than principle and interest payments that are normally associated with an amortizing mortgage loan. Good interest only mortgages will typically have a mortgage interest rate that is within 1.0% of the prime lending rate for any lender.

While these mortgage rates may be higher than a comparable fixed rate mortgage, the overall payment will be lower. For example:

• Interest only mortgage loan payments at 6.25% on a $200,000 loan would cost $1,041.67/ month.
• Compare this to the solution from our mortgage calculator that shows the payment on a $200,000 loan at 6.25% over 25 years at $1,309.48/ month.
• There is a monthly payment reduction of $267.81 in this case.

Higher Mortgage Interest Rate but Reduced Monthly Cost

One of the biggest advantages to interest only mortgages is a reduced monthly cost for the term of the mortgage. In this way, a buyer could afford a larger home on the same income, or get into a particular market with a fixed monthly budget for housing.

Also consider what you could do with the extra cash flow that is not being spent on your mortgage loan payment. In the example above, there is $267.81 per month of cash that is available to invest and generate a return from. Many investors will take advantage of this basic principle through interest only mortgage financing and put a large down payment on an investment property, while managing their cash flow on a monthly basis.

Refinance Mortgage Interest and Get Ahead

Over the short term, and especially in strong real estate markets where appreciation of real estate is strong, interest only mortgages can be a powerful tool for a borrower. A purchaser can acquire a property at one price, and within a strong real estate market, can use the interest only loan to minimize monthly costs until the property can be sold for a cash gain in the future.

In many cases, the interest only mortgage is available as a home equity line of credit (HELOC). This variation is considered by many to be a very good interest only mortgage alternative. Contact MBN Mortgage in Calgary to learn more.