Interest only loans - Questions about payment and exit strategy

[Garrett Ranous]

Hello everyone. I am considering using a turnkey company to rent a property and due to the covid and my current switching of jobs I can really only get an interest-only loan. Both the mentor and loan officer kind of explained it to me but I m hoping someone else might be able to put it into lamen terms for me and maybe clear up any more doubts I have before getting into it.

I am looking at properties that are roughly 100k and 7% interest (about) and was told I can get a 2-year interest only loan. However, does this mean that the interest is front loaded into those first two years and after the first two years I will have way less interest to pay? Or would I be just paying the interest at the normal rate? For example, if my mortgage (under a normal loan) were to be 1,200 dollars per month and the interest would be $84. Would I just be paying $84  per month for those two years or would it be a higher amount and I would be getting all of the interest out of the way faster so that the remaining term of the loan would be mostly principle? (ex. I still pay $1,200 per month but it is all interest and I am wiping out all the interest really early?)

Another question I am trying to understand is, if I am on a 2-year interest-only loan, can I refinance earlier than 2 years in if I get it leased out? Lets say I get a tenant into the house in 3 months who will be on a 1 year lease or longer can I still refinance and leave the interest only loan?

I am sorry if my questions are to much. You can probably see I am new to this and just trying to get a better grasp on this. I am reading through other posts about this and have gotten rid of many doubts so far but still feel like it would be good what else anyone has to say.

Thanks!

Garrett

[David M.]

@Garrett Ranous

It’s like a credit card or interest only heloc ... 7% annual interest on 100k should have you paying just under $600 a month I believe. It’s different from a amortization payment since you aren’t paying any interest. It’s great for keeping your dti low since the payment are lower.

Check your loan terms. You should be able refi before the two years is up. That’s generally the approach...