A new home loan product from Wells Fargo Home Mortgage could help home buyers looking to increase their short-term cash flow or who intend to move or refinance within a few years.

 

The company is launching an interest-only feature that doesn’t require principal payment for a period of 10 years. Wells Fargo Home Mortgage’s interest-only product was previously available only on 5- and 7-year adjustable-rate mortgages, or ARMs for short.

 

Interest-only mortgages can be used for purchase or refinance transactions and allow home buyers to make payments of “interest only” during the fixed-rate period of the ARM — five, seven or 10 years. After the interest-only period has ended, full principal and interest payments are required as the loan fully amortizes.

 

Home buyers and homeowners can make principal reductions during the interest-only period, but aren’t required to do so, according to Wells.

 

Potential home buyers who may be suited for the interest-only feature are those who don’t intend to stay in their homes for more than a few years, and people looking for lower monthly payments and a chance to redirect their cash flow to high-yield and tax-deferred savings or maximize retirement contributions.

Interest-only mortgages are not for home buyers who are looking to build equity by paying down their principal or buying in a market where home values are not appreciating. Interest-only  mortgages cannot be used for investment properties.

 

“The interest-only feature is a great option for customers who need to invest funds in other ways,” said Joe Rogers, executive vice president for pricing, products and programs within Wells Fargo Home Mortgage’s National Consumer Lending Sales area. “To some, a home is not their best or most important asset-building tool. To others, a short-term ability to lower payments each month works with their long-term cash or asset management strategies.”

 

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