Everyone would agree mortgages are necessary expenses. Probably the biggest expense most of us have. Mortgages present the opportunity to secure income tax deductions while utilizing the house to live.

What if you could reduce your mortgage interest rate to 3% and be required to pay interest only for 5 years? Would you refinance your current house? Purchase another?

While refinancing a clients mortgage, I discovered such a mortgage. The client will save lots of money the next few years. Here is his scenario:

Client #1$500,000 Loan Amount
Past30 Year Fixed @6.00%=P&I$2,997.75/ month
5th year loan balance$ 456,989.77
Equity (assuming no appreciation)$ 43,010.23
Current
LIBOR ARM@3.00%=Interest only$1,250.00/ month
Applied additional $1747.75 / month to principal for 5 years
5th year loan balance$ 362,370.82
Equity (assuming no appreciation)$ 137,629.18

I proposed this loan program to Client #2.

Client #2$1.2 Million Loan Amount
Current
5/25 ARM@4.25%=P&I$5,903.28/ month
5th year loan balance$1,064,681.48
Equity (assuming no appreciation)$ 135,318.35
Proposed
LIBOR ARM@3.00%=Interest Only$3,000/ month
Applied additional $2903.20 / month to principal for 5 years
5th year loan balance$ 971,261.81
Equity (assuming no appreciation)$ 228,738.19

You can see from these scenarios this mortgage can be a great tool to reduce your monthly mortgage payment or to shave down the loan balance thereby increasing your equity.

This mortgage interest program is termed negative amortization. Rather than paying off the interest over the time period, you are paying of a small portion of the interest but not the required amount. Interest rates can go as low as 1.25%

If you want savings refinance your mortgage.