Interest only loans - do they still do them?

Question

curious about interest only loans - aside from HELOC's, do these still exist, and what scenario is this beneficial? Someone was asking me about this and I'm not sure of the answer.

Vaughn Smith · Answer

@William Garcia nowadays non hard money I/O loans are hard to come by in residential real estate (especially now as non QM loans are frozen at most banks due to the pandemic). They are often used for short term financing and in commercial real estate, these loans are primarily used to maximize cash-flow by people that arent so focused on debt pay down.

Cameron Tope · Answer

The only benefit is the low monthly payment. You would use interest only loans if you're in a high appreciation market where you know you'll be building a lot of equity and don't need the debt pay-down.

@Alex Olson I don't know companies outside of Houston or nationally.

Alex Olson · Answer

@Cameron Tope That's great news! Mind sharing who these local banks are in KC? Or national? DM me if you prefer.

William Garcia · Answer

Thank you Cam

what's the benefit, i assume it works for a short period. maybe while rehabbing, then refi? im trying to figure out the benefit other than low monthly payment since prin. doesn't go down

Cameron Tope · Answer

That's not correct @Alex Olson - there are local banks that do interest only loans that are not hard money.

The benefit of doing interest only is your monthly payment is lower. The downside is the loan balance doesn't change.

Hope that helps!

Alex Olson · Answer

@William Garcia Yes they exist but almost exclusively in hard money loans or other types of short term credit. I don't know of any local or national banks that do interest only other on HELOCs as you suggest.