Interest-Only Mortgage in Florida: Payments and Risks

Can you get an interest-only mortgage in Florida?

Possibly. Availability depends on the lender, loan type, investor, property, and occupancy.

An interest-only mortgage may lower your required payment for a set time. But the loan balance usually does not go down during that period.

The key question is whether you can afford the later payment and the full cost of owning the home.

When the interest-only period ends, you may begin making principal-and-interest payments. Those payments can be much higher, even if the interest rate stays the same.

An interest-only loan is not the same as an adjustable-rate mortgage, or ARM. A loan can have one feature, both features, or neither feature.

How an interest-only mortgage works

A fully amortizing mortgage pays interest and some principal with each scheduled payment. Principal is the amount you borrowed. As principal is paid, the balance falls.

During an interest-only period, the scheduled payment covers interest only. The balance generally stays the same unless you make extra principal payments.

The Consumer Financial Protection Bureau explains that borrowers may later need to pay off the balance, refinance if available, or make higher payments that reduce the balance.

The exact loan term and interest-only period depend on the program and loan documents. Read the payment schedule before you compare the first payment.

See the later payment before you focus on the first one

This is a simple example. It is not a rate quote, loan offer, or approval.

• Loan amount: $600,000
• Assumed fixed interest rate: 6.50%
• Total loan term: 30 years
• Interest-only period: first 10 years

For the first 10 years, the principal-and-interest payment would be about $3,250 per month. This payment covers interest only.

After year 10, the balance would still be $600,000 if you made no extra principal payments. If the same 6.50% rate applied for the remaining 20 years, the new principal-and-interest payment would be about $4,473 per month.

That is about $1,223 more each month, or about a 38% increase. Taxes, insurance, flood coverage, mortgage insurance when applicable, and condo or HOA dues are not included.

If the rate can adjust, the later payment could be different. Ask for the starting payment, the first fully amortizing payment, and the highest payment allowed under the loan terms.

Why the payment can rise

A standard 30-year loan spreads principal repayment over 360 months.

An interest-only loan does not reduce the balance during the interest-only period. After that period, the unpaid balance must be repaid over the time left on the loan.

The Consumer Financial Protection Bureau’s Regulation Z resources require mortgage disclosures to show interest-only payments and the related payment structure when those features apply.

Can you qualify for one in Florida?

There is no single Florida credit score, down payment, debt-to-income ratio, reserve amount, or income rule for every interest-only mortgage.

Lenders may review your income, assets, debts, credit history, down payment, property use, and ability to handle the later payment. Rules may also differ for second homes, condos, investment properties, and larger loans.

Fannie Mae lists mortgages with an interest-only feature among products it does not purchase. That does not mean no lender offers this structure. It means you should not assume an interest-only loan follows standard Fannie Mae conventional rules.

If you are considering a larger loan, read our guide to jumbo mortgage requirements in Florida. If the property will not be your main home, compare Florida second-home and investment-property mortgages.

Include Florida carrying costs

Your mortgage payment is only one part of your housing cost.

Florida buyers may also pay property taxes, homeowners insurance, wind coverage, flood insurance, and condo or HOA dues. These costs vary by property and location.

Property taxes need special care after a purchase. A prior owner may have had a homestead exemption and a Save Our Homes benefit. After a change in ownership, the property appraiser may remove prior benefits and reassess the property.

The Florida Department of Revenue explains that a new owner’s tax bill may be higher than the prior owner’s bill.

Flood insurance is separate from standard homeowners coverage in many cases. Citizens explains that standard homeowners policies do not cover flooding. Ask an insurance professional about homeowners, wind, flood, and property-specific coverage before you commit to a payment.

For a waterfront home, read can you get a mortgage on a Florida waterfront home?

For more on changing tax escrow, see why Florida property-tax escrow can change after you buy.

Risks to understand

The balance may not fall

If you make only the scheduled interest-only payment, you usually build no equity through principal reduction. Home value growth is not guaranteed.

The later payment may not fit your budget

Do not judge the loan by its first payment. Build your budget around the future principal-and-interest payment. Add taxes, insurance, flood coverage when needed, and association dues.

Refinancing may not be available

Some borrowers plan to refinance before the payment changes. That plan can fail if rates rise, income changes, credit weakens, the property loses value, or guidelines change.

The CFPB warns borrowers not to assume they can refinance or sell if the payment rises.

Selling may take longer than expected

A sale is not a guaranteed exit plan. Markets can change. The home may take longer to sell, and selling costs reduce the money available to pay off the loan.

An ARM can add rate risk

Some interest-only loans also have adjustable rates. In that case, the payment may rise because principal repayment begins and because the rate changes.

Ask whether the rate is fixed or adjustable. If it adjusts, ask about the index, margin, adjustment dates, and rate caps.

When may this structure be worth discussing?

An interest-only structure may be worth reviewing when you have a clear reason for the lower starting payment and can afford the later payment.

You may have strong liquid assets, irregular but well-documented income, or a clear plan to pay extra principal.

The plan should still work if a future refinance, sale, rental income increase, or price gain does not happen.

For some buyers, a fully amortizing loan is easier to budget. Compare standard loan terms in our guide to 15-year versus 30-year mortgages in Florida.

Questions to ask a lender

• How long is the interest-only period?
• Is the rate fixed, adjustable, or both?
• What will the first fully amortizing payment be?
• What is the highest payment allowed under the loan terms?
• Can I make extra principal payments?
• Are there limits, fees, or a prepayment penalty?
• How will you review my ability to repay the later payment?
• What cash reserves does the program require?
• How do property type and occupancy affect the terms?
• What are the estimated taxes, homeowners insurance, flood insurance, and HOA or condo dues?

Use these questions early. Our guide to questions to ask a Florida mortgage lender before an offer can help.

Frequently asked questions

Is an interest-only mortgage the same as a balloon loan?

No. An interest-only loan allows interest-only payments for a period. A balloon loan requires a large final payment.

Read the note and payment schedule closely.

Can I pay principal during the interest-only period?

Some loans allow extra principal payments. The loan documents control. Ask how extra payments are applied and whether a prepayment penalty applies.

Will an interest-only loan lower my total cost?

Not by itself. Paying less principal early leaves a larger balance for longer. Compare total interest, closing costs, expected holding period, and the payment after the interest-only period.

Official resources

• Consumer Financial Protection Bureau: What is an interest-only loan?
• Consumer Financial Protection Bureau: Regulation Z
• Fannie Mae Selling Guide: Unacceptable mortgage products
• Florida Department of Revenue: Property Tax Information for First-Time Florida Homebuyers
• Citizens Property Insurance: Why do I need flood insurance?

Compliance note: This article is for education only. Loan programs and terms vary. All loans are subject to underwriting and credit approval. This is not a commitment to lend.