Best Interest-Only Mortgage Lenders

New American Funding stands out as one of the most reliable interest-only mortgage lenders

Find the best interest-only mortgage lender and get a quote now.

Consider an interest-only mortgage if you’re ready to buy a home but are intimidated by the high monthly mortgage payments. This type of mortgage makes sense for real estate investors, small-business owners, or other professionals in a growth phase of their careers. In that case, higher income in three to five years can make higher mortgage payments easier while allowing you to purchase a home right away. The best interest-only mortgage lenders offer the exceptional service and reliability you need while making one of the biggest purchases of your life. 

Quick Look: Best Interest-Only Mortgage Lenders

8 Best Interest-Only Mortgage Lenders

Here are the best interest-only mortgage lenders of 2024:

1. Best for Overall Mortgage Options: New American Funding

New American Funding (NAF) offers conventional, proprietary and government-backed mortgages. NAF aims to help first-time home buyers and self-employed or underrepresented borrowers secure a home loan. It may also be a good fit for senior homeowners looking for a reverse mortgage. 

• Minimum credit score: 620
• Minimum down payment: 3%
• States served: All states except New York and Hawaii

2. Best for Smaller Down Payments: PNC Bank

PNC Bank has an excellent lender reputation with a Better Business Bureau rating of A+. PNC Bank offers various mortgages beyond interest-only loans. PNC Bank is good for borrowers with limited down payments or a moderate income.

PNC doesn’t offer renovation mortgages or home equity loans, and in-person service is not available in every state. You must create an account or supply personal data to get answers by phone.

• Minimum credit score: 620
• Minimum down payment: 3%
• States served: All 50 states

3. Best for High-Value Properties: Chase Equity Housing Lender

Chase Bank is a well-known bank with an established reputation for excellence. Chase is a good option for borrowers and those interested in loans with low down payment requirements. Chase typically offers interest-free loans on high-value, single-family primary or secondary home purchases or no-cash-out refinances. 

• Minimum credit score: 620
• Minimum down payment: 3%
• States served: All states except Alaska and Hawaii

4. Best for Flexible Options: Guaranteed Rate

Interest-only mortgages from Guaranteed Rate are aimed at borrowers who expect significant income growth over time. In addition to interest-only loans, Guaranteed Rate offers jumbo loans and loans for renovations as well as government-backed mortgages and home equity lines of credit (HELOCs). 

• Minimum credit score: 620
• Minimum down payment: 3%
• States served: All 50 states

5. Best for Borrowers with an SSN: Wells Fargo

Wells Fargo is a well-known bank with excellent customer service. If you’re an existing Wells Fago customer, you can access a wide range of mortgage products. It specializes in helping self-employed borrowers and homebuyers without Social Security numbers to get loans.

• Minimum credit score: 620
• Minimum down payment: 3%
• States served: All 50 states

6. Best for First-Time Homebuyers: Bank of America

Bank of America is often the best decision for first-time home buyers looking for low- or no-down-payment options. Bank of America also offers home equity line of credit options. Bank of America has a strong customer service reputation, with flexible options for customers.

• Minimum credit score: 660
• Minimum down payment: 5%
• States served: All 50 states

7. Best for Rate Comparison: Flagstar

Flagstar offers unique loan options, including mortgages for manufactured homes or individual taxpayer identification number (ITIN) loans. It also offers HELOCs and construction or renovation loans. With excellent customer reviews, it can offer reliable interest-only mortgage options. 

• Minimum credit score: 620
• Minimum down payment: 3%
• States served: All 50 states

8. Best for New Construction: Wintrust Mortgage

Wintrust Mortgage offers a variety of mortgage products and online conveniences, such as loan process updates. You must apply to find the best available interest rates. Wintrust Mortgage is also available for new construction, with an adjustable rate and jumbo financing options up to $5 million. Construction loans are interest only until project completion. You can renovate loan terms between 12 to 18 months.

• Minimum credit score: N/A
• Minimum down payment: 3%-3.5%
• States served: All 50 states

What Is an Interest-Only Mortgage?

An interest-only mortgage is a type of loan where the borrower only pays the interest for a certain period, usually five to 10 years, without paying any principal. That means you won’t have to pay anything but the interest for the interest-only period, reducing monthly expenses. The major disadvantage? You don’t build equity in the home. But if it offers the opportunity to get into a house that could be appreciated, it can be the right choice for some buyers. 

How Does an Interest-Only Mortgage Work?

During the initial period, you pay only the interest on the loan, which results in lower monthly payments. After this period, you must start paying both principal and interest, typically resulting in higher payments. It can be challenging for borrowers to meet the higher payment amounts when the interest-only period ends. 

Pros of Interest-Only Mortgage

Interest-only mortgages have significant advantages for certain borrowers. Here’s what you might need to consider:

Lower Monthly Payments 

Interest-only mortgages often have lower monthly payments than traditional ones, allowing borrowers to free up cash flow for other expenses. If you plan to perform extensive renovations, focus on building your retirement fund, or are planning for a larger salary in the near future, the early lower monthly payments can be a boon. 

Flexibility

Borrowers can make additional principal payments if they choose to, potentially paying off their mortgage faster. With an interest-only mortgage, you can pay extra when your budget allows, without the pressure of higher monthly payments. For borrowers with irregular income, this can be especially useful.

Investment Opportunities

With lower mortgage payments, borrowers can use the additional cash flow to invest in other opportunities, such as stocks or real estate, potentially taking advantage of long-term compound interest for retirement while securing a home. 

Cons of Interest-Only Mortgage

Interest-only mortgages also have some significant disadvantages. Here’s what you will want to consider. 

Interest-Only Period Limitations

The interest-only period is typically limited, and once it ends, borrowers must begin repaying both principal and interest, leading to potentially higher monthly payments. This can put a strain on some borrowers’ budgets. 

Limited Equity Growth 

With interest-only payments, borrowers are not building equity in their homes during the initial period, which can limit their ability to tap into home equity or benefit from appreciation. If home values remain stable or appreciate minimally, this can mean that they don’t build any equity in the home. 

Higher Long-Term Costs

By only paying interest for a certain period, borrowers pay more in interest over the loan life than traditional mortgages. This can be the difference of many thousands in additional interest payments over the loan’s lifetime. 

How to Qualify for an Interest-Only Mortgage

Qualifying for an interest-only mortgage typically requires meeting certain credit score, income, and down payment requirements. Generally, lenders look for borrowers with good to excellent credit scores. You may need a credit score of 700 or higher to qualify for an interest-only mortgage. Lenders may also require a higher down payment and lower debt-to-income ratio. 

Exact criteria vary by lender. You can apply to multiple lenders and compare the best available offers. Some may be more flexible if you don’t meet one criterion but have more of another. For example, if you have a high credit score and a higher down payment, they might accept a higher debt-to-income ratio. 

Factors to Evaluate Before Applying for an Interest-Only Mortgage 

Before applying for an interest-only mortgage, carefully consider the following factors. 

Lender Research

Conduct thorough research on the lender offering the interest-only mortgage. Evaluate its reputation, customer reviews and overall credibility. You can check online reviews, the Better Business Bureau and its history. You can compare online lenders as well as local banks and credit unions. 

Financial Stability and Future Plans

Assessing your financial stability and long-term plans before opting for an interest-only mortgage is important. You want to ensure that you can pay the mortgage after the interest-only period ends without compromising other financial goals like emergency and retirement savings. 

Interest Rate and Terms

You should look carefully at the interest rate structure of the mortgage and whether it is fixed or variable. Consider the possibility of a higher interest rate in the future as well as the total amount you’ll pay in interest and fees annually and over the life of the loan. Learn more about how mortgage interest rates work. 

Property Value and Appreciation

Carefully evaluate the potential appreciation of the property and its impact on the long-term viability of an interest-only mortgage. Is it in a growing area? Is the property under market value? A local real estate agent can help you with research in target markets to understand the current market and possible market trends. 

Exit Strategy

When you purchase any property, you’ll want an exit strategy. Consider whether you’ll be able to recoup your investment in interest and closing costs if you get an interest-only mortgage. If you sell in three to five years, will you break even? How much will you have paid in interest and other associated costs compared to rental prices? 

Try to build additional savings during the interest-only period to help with payments when it ends. If you can’t afford the payment after the interest-only period ends, consider renegotiating with the lender, getting a side hustle or other options to bring in additional income. Get 21 ideas to make money fast here. 

Getting the Best Interest-Only Mortgage Rates

All of the mortgage lenders above offer flexible options for interest-only mortgages. Whether you’re buying your first home, building your dream home or buying an investment property, they offer options to meet your loan needs. Remember to compare lenders’ total interest rates and terms to find the best options.

Frequently Asked Questions