Interest Only Mortgage at BFR

BFR’s expansive list of products includes interest only mortgages. We will walk you through the pros and cons of interest only loans and how they compare to a principal and interest mortgage

What Is an Interest Only Mortgage?

Interest Only Adjustable Rate Mortgage (ARM):

• Interest Only is available for the 3/1, 5/1, 7/1 & 10/1 ARM products.
• The I/O (interest only) period matches the initial fixed rate period. For example, a 7/1 ARM would have a 7 year I/O period. The rate would be fixed for the first 7 years and then the payment adjusts to an index plus a fixed margin.
• Ideal for commissioned, bonused, or self-employed borrowers for increased payment flexibility.
• After the I/O period, the principal and interest payments are amortized over the remaining term.
• Principal payments are permitted during the I/O period.
• The mortgage re-amortizes when principal payment are made.
• Reserve fund requirement: 12 months PITIA for loan amounts =< $1.5mm; 18 months PITIA for loan amounts > $1.5mm - $3mm.
• These are not QM loan, but must meet ATR (Ability-To-Repay) rules.
• Piggy back home equity lines of credit are not permitted.
• Maximum loan to value ratio is 75%.

What Are Some of the Rules for Qualifying?

CFPB/QM ATR Rules (Qualified Mortgage Ability To Repay):

The ATR rule requires that the originator make a reasonable, good-faith determination before or when the loan is consumated and that the consumer has a reasonable ability to repay the loan. The origination lender must consider the eight underwriting factors established by the CFPB and the loan file must be documented accordingly.

1. The borrower’s current or reasonably expected income or assets;
2. The borrower’s current employment status;
3. The borrower’s monthly payment on the covered transaction;
4. The borrower’s monthly payment on any simultaneous loan;
5. The borrower’s monthly payment for mortgage-related obligations;
6. The borrower’s current debt obligations, alimony, and child support;
7. The borrower’s monthly debt-to-income ratio or residual income; and
8. The borrower’s credit history.

Interest Only 3/1, 5/1 & 7/1 ARMs will be qualified for debt to income ratio purposes using the fully indexed rate, with the remaining term after the I/O period.

Find out more about interest only mortgages by calling us at 212-933-0157 or filling out the contact form below!