The mechanics of an interest-only mortgage loan are simple: For a set period, you pay only the interest portion of your monthly mortgage payment, allowing you to save or invest the money you would have paid in principal. Paying only interest also has considerable value in tax deductions.

This flexible product is designed for those customers who will move frequently or who can earn more money (than the rate of interest) by investing the principal portion of their payment. The lower monthly payment that results from this product enables many customers to afford substantially larger homes because they can borrow more money.

Customers who are ascending in the economic world find this loan attractive as it enables them to maximize their home-buying dollar and tax deductibility. Many sales executives and members of professional partnerships select this product and pay down the principal when they receive a bonus. This prepayment of the principal results in even lower monthly payments, thus giving the customer even more disposable income. The same cannot be said of self-liquidating loans, such as fixed rate mortgages, as paying down the principal does not affect the size of monthly payments.

Case Study
An aspiring IT manager was recruited from the West Coast by a local firm. The new position enabled the young executive to enjoy a substantial increase in pay, benefits and status. The position also offered an excellent opportunity for advancement, and he hoped to eventually end up at the firm’s New York office.

His new employer wanted him to establish roots in the community as soon as possible, and the executive was eager to purchase a home. However, his new sense of status in life compelled he and his wife to select homes that other financing sources thought were beyond their reach. Fortunately, his search took a turn for the better when he was recommended to us by other EMA customers in his firm.

EMA recommended an interest-only mortgage because of the lower payment associated with it. The lower monthly payment made it possible for him to borrow more money and thus purchase a larger home that complemented his new social and professional status. The lower payment also resulted in more monthly disposable income, allowing him to invest in his image and appearance, as well as entertain clients and associates. Furthermore, the tax benefit resulted in an end-of-year return that he used to reduce the principal portion of the loan, which lowered his monthly payments even further.

Two years later, the executive was promoted to the New York office and sold his home at a profit to a new executive recruited by his employer.