Interest Only Mortgages were invented for the person who made a lot of money through commissions, sales and bonus.They need to monitor their cash flow during the year, but can pay off the mortgage principal in chunks along the way. The truth is, that they are disciplined enough to do so. The idea was to keep the monthly payment at a minimum (interest only) and then reduce the principal on a regular basis.Each time the principal was reduced, the mortgage would be recast to show a lower payment.

     Then the average Joe realized that they could also get this type of loan and have a smaller payment; hence borrow more money.The difference between the two borrower types is that Joe never pays down his mortgage principal and keeps paying the same large amount of interest.Not the right loan for him at all.

     Some lenders would qualify the borrower at the monthly payment of principal and interest while other lenders would only qualify at the interest only payment.A borrower being qualified at interest only means that they had more borrowing power.

     These times, they are a changing:A large lender just sent out the following notice to the wholesale lenders: The qualifying payment on interest only mortgages will be the fully indexed rate with principal and interest payments. So, the borrower will still have to qualify with the interest and principal payment.A 30 year, fully amortized payment, based on the fully indexed rate will be used to qualify the borrower. As a result of the above change, the qualifying ratios for Interest Only loans have been increased to 38/43 (Formerly 33/38).—So, now they can qualify for higher mortgagee payments.Take it away somewhere; give it on the other end. Will these lenders ever learn!

– Dale Siegel