### Contents

A dual index mortgage is a type. and salary index. So the interest rate is tied in a way to the interest rate index, but can still fluctuate widely, which is why these mortgages are sometimes.

How it works (Example): The interest rate is prime plus 5% with a cap of 10%. If the prime rate is 3%, then in a regular mortgage (in which part of the payment is the repayment of principal) the borrower’s interest rate is 8% (5% + 3%), and the monthly payment is $733.77. But in an interest-only ARM, the payment is only the interest portion:.

Refinancing Interest Only Loans With an interest-only loan, a home buyer pays only the interest portion of a mortgage loan for a set period of time. The fact that his payments are lower for that given period may allow him to.

Discounts available for all adjustable-rate mortgage (arm) loan sizes, and selected jumbo fixed-rate loans. Discount for ARMs applies to initial fixed-rate period only with the exception of the 1-month ARM where the discount is applied to the margin.

Smaller payments: monthly payments for interest-only loans tend to be lower than payments for standard amortizing loans (amortization is the process of paying down debt over time).That’s because standard loans typically include your interest cost plus some portion of your loan balance.

Interest Only Adjustable Rate Mortgage (ARM) This calculator shows an Interest Only ARM. The length of the loan is 30 years, with the initial interest rate fixed for the interest only payment period.

Jumbo Interest Only Rates With a fixed-rate interest-only mortgage, you can make interest-only payments for the initial term, normally up to 10 years. At the end of the interest-only term, the loan is amortized to include principal and interest. This means payments will increase. When your initial interest-only rate is up, you could have some options aside from keeping the loan with the now higher payment.

By Investopedia Staff. An interest-only adjustable-rate mortgage (ARM) is a type of mortgage loan in which the borrower is only required to pay the interest owed each month, for a certain period of time. During the interest-only period, only interest accrued each period must be paid, and a borrower is not required to pay down any principal owed.

Once considered toxic during the housing crash, interest-only mortgages are making a comeback, but these are not the loans of yesteryear.

Pay Interest Only for More Flexibility. Buyers with an interest-only mortgage can expect significantly lower payments during the initial phase of the loan, and higher payments during the final period.

Discounts available for all Adjustable-Rate Mortgage (ARM) loan sizes, and selected Jumbo Fixed-Rate loans. Discount for ARMs applies to initial xed-rate period only with the exception of the 1-month ARM where the discount is applied to the margin.