How to Stop Paying on an Interest Only Mortgage

An interest-only mortgage is a specific type of loan that allows the borrower to make only the interest payments associated with the loan for a specified period of time, known as the interest-only period or interest-only term. Eventually, the principal of the loan will come due and you'll need to make huge payments to catch up. For this reason, many borrowers look for a way to stop paying on an interest-only mortgage when the interest-only period ends.

Instructions

1

Renegotiate with your lender directly. Ask a lender representative if a loan-modification program is available. A loan-modification program does not require a refinancing. Instead, the lender amends the contract to include different payment options or a lower interest rate. You may be able to stop paying your interest-only mortgage and have it converted to a conventional fixed-rate, fully amortized loan.

2

Refinance your mortgage into a fully amortized loan with the bank that holds your mortgage. Or you can shop around. In a fixed, fully amortized loan, you make a fixed payment on the loan that covers interest as well as some of the principal. Eventually, the loan will be paid off with no balloon payments. This is a good option if your credit is strong enough to qualify for another loan. The existing loan will be paid off when the new loan is issued.

3

Sell your home to pay off the debt. It might take six months or longer to sell your home if the real estate market is soft in your area.

4

Go into foreclosure. This is the least-attractive option. You can stop making payments on the mortgage altogether and wait for the bank to start foreclosure proceedings. This option will ruin your chances of buying another home for at least seven years, so extreme caution should be used. Essentially, you are defaulting on the loan, which could force you to rent an apartment for several years while you rebuild your credit score to the point where you could get a loan to buy another home.