Are you looking for a mortgage that will give you flexibility with your finances, have lower payments during the term, and provide you with extra monthly cash flow?
Perhaps Jane and Lance's situation will sound familiar to you. Jane is a successful doctor who owns her own practice and Lance is a teacher. They can afford a traditional mortgage based on their annual income and savings, but they accumulated $58,000 in student loans debt. Jane and Lance decided to purchase a home using an interest-only mortgage with a variable rate to keep their payments as low as possible. With the extra cash flow they save each month, they are paying down the more expensive student loans with the goal of eliminating those debts by the time their 5-year term is completed.
Or maybe Fred's story is closer to your own. Fred works in the Alberta Oil Sands. He earns good wages, but his income fluctuates based on the amount of work and overtime available. Fred purchased a home in Edmonton to live in when he isn't in the Oil Sands. He chose an interest-only mortgage because he can make the lower required payment even in slower months, then when cash flow is good, he can pay extra as a lump sum payment and designate that toward the principal. Essentially, Fred is still paying down his mortgage but on a schedule that fits his irregular cash flow.
What is an Interest-Only Mortgage?
An interest-only mortgage is a financing solution where you only make payments of interest during the term. You don't have to repay the principal amount like on a traditional mortgage. Since you are only making a payment of the interest, your monthly mortgage payment will be comparatively lower, giving you choice and flexibility with your finances.
You still need to meet the qualifying criteria, including the qualifying rate, credit history, and debt service ratios. The rates for an interest-only mortgage are comparable to those available for a traditional mortgage.
For example, on a $400,000 mortgage over 25 years at a 4% interest rate, the usual monthly repayment would be approximately $1,902/month. But if you were making interest-only payments, the monthly cost would be approximately $1,321/month, providing an extra $580 in monthly cash flow.
What are the benefits of an Interest-Only Mortgage?
The greatest benefit of an interest-only mortgage is lower monthly payments throughout your term. This translates into many opportunities for you:
- Make a realistic interest-only payment each month that fits a seasonal or cyclical cash flow, and then make a lump sum payment against the principal when you have the funds available to do so.
- Use the cash flow you save on mortgage payments each month to pay down higher interest debts such as student loans and credit cards.
- Invest the amount you save each month in a product that will give you a greater return over the long-term to improve your total wealth.
- Keep expenses for rental properties low and maximize your cash flow.
- Save the additional funds each month for home renovations that will improve your property value.
The Auxilium team stays on top of changing mortgage products and lender guidelines to find the best fit for your situation. If you're interested in minimizing your monthly mortgage payments and maximizing your cash flow, our experienced brokers will work with you to find a solution. Contact us for a free consultation with one of our underwriters: call 250-590-650 (toll-free 1-855-590-6520) or visit us at 307 Goldstream Avenue during regular business hours. We can arrange an appointment at our Fort Street office, or evenings or weekends, to work with you.
Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.