Question by Amanda: If you obtain an interest-only mortgage, can you refinance to a traditional mortgage later?
Right now I am staying home with the kids but I plan on going back to work when they begin school in four years. Is it possible to obtain an interest-only mortgage for, say, five years and then refinance to a traditional 30 year mortgage later on?
Answer by MBA Don
Yes you definitely can.
1) The trouble you may have later is that you will need to have a downpayment which may be 20% of the value of the house.
So unless you have a large equity position on your house, or if you already have a lot of cash, you may want to start saving for it.
Add your own answer in the comments!
Yes as long as you qualify for the mortgage and the rates are what you want, you can refinance any time you want to.
Some 30 year mortgages may come with a 5 or 10 year interest only option. That means you can pay interest only (or more) for the initial period and then the loan will reamortize to P&I payments after the IO period.
You can refi almost any loan anytime as long as you meet income, credit and loan to value criteria.
Keep in mind that IO option loans will have a higher interest rate than a P&I 30. IO will only lower you payment $ 100 to $ 400 per month depending on the loan amount.
Hope this helps.
Sure you can….Hopefully there won’t be a prepayment penalty in your scenario. Keep in mind that you can almost always pay extra toward principal even on an I/O loan. Just make a note on the payment “toward principal.’ The good part is you can do that whenever you have a little extra money set aside, but skip it when you don’t.
…..Your best bet would be a 30 year mortgage. You could also investigate a 40 year fixed rate (but it may be higher) to see if lowering the payments that way would help in your situation.