An interest only mortgage lets you pay just the interest for a set period, commonly the first 10 years, so the monthly payment drops. The catch is that the balance does not shrink during that time, and when the period ends the payment is recalculated on a shorter remaining term. These loans are generally non-QM (non-qualified mortgage) products, so availability, pricing, and down payment rules vary by program and change often. Anything quoted here is illustrative, and you should confirm current terms as of the date of your quote.
Duane Buziak walks Florida buyers and homeowners through seven strategies for deciding whether the structure fits, starting with the question most people ask first: is an interest only mortgage a good idea? The honest answer depends on your income pattern, your exit plan, and how the payment looks after the interest only period ends.
By Duane Buziak, NMLS #1110647, Florida-licensed mortgage broker serving clients statewide (Coast2Coast Mortgage LLC, NMLS #376205).
1. Start With the Payment Math
The saving on an interest only loan is real, but it is a deferral, not a discount. You are not paying less for the money. You are postponing principal repayment, and the balance you owe on day one is the balance you owe at the end of the interest only period.
Consider an illustration: a $400,000 loan at 7%. Interest only, the payment is about $2,333 a month ($400,000 x 7% / 12). A 30-year fixed at the same rate is about $2,661. The gap is roughly $328 a month, and for that $328 you give up all principal reduction. Over 10 years, a fully amortizing loan at that rate would have retired roughly $56,800 of principal.
To put this into practice:
- Open the CFPB mortgage calculator and run the fully amortizing payment for your loan amount and rate.
- Calculate the interest only payment: balance x annual rate / 12.
- Calculate the post-recast payment by amortizing the full balance over the remaining term. On a 10-year interest only period with a 30-year term, that is 20 years.
- Write all three numbers side by side before you compare anything else.
The most common mistake is looking only at the first-period payment and treating the later jump as a problem for future you. Future you will pay the higher figure, and it is a function of arithmetic, not of the market.
What to measure: the monthly difference between interest only and amortizing, and the post-recast payment as a percent of take-home pay. If the recast payment would take a share of your take-home that you could not comfortably sustain, the structure is borrowing against a future you have not yet confirmed.
2. Factor in Florida’s No Income Tax and Real DTI
Florida has no state tax on wages, which gives Florida earners more take-home cash from the same salary. That cushion is a genuine advantage when you are judging whether a payment is livable. It does not change how a program calculates debt-to-income ratio (DTI, your monthly debts divided by gross monthly income), because DTI uses gross income.
A labeled hypothetical: suppose a $120,000 salary in Florida and the same salary in a state with a flat 5% income tax. The other state takes about $6,000 a year, or $500 a month, before federal items. In Florida that $500 stays in your budget and can absorb a recast increase, insurance repricing, or voluntary principal payments. It is a budget buffer, not an underwriting credit.
The question that matters is how the loan is qualified. Some programs qualify you at the interest only payment, while many qualify you at a fully amortizing payment over the remaining term. Ask your broker directly, and build your own DTI with the full housing cost: principal and interest, property taxes, homeowners insurance, flood insurance where required, and HOA dues. Florida insurance and flood premiums can be large, so they belong in the calculation from the first conversation.
The common mistake is assuming the lower payment raises the loan amount you can be approved for. Often it does not, and you may be sized at the higher payment regardless.
What to measure: DTI at the fully amortizing payment, including taxes, insurance, and HOA. If that number is tight, the interest only payment is masking a loan you would not otherwise carry.
3. Match the Loan to Your Income Pattern
Interest only structures fit borrowers whose income arrives unevenly, or who plan to sell or refinance on a known date. They fit steady W-2 borrowers less well, because a steady earner gives up forced principal reduction without gaining flexibility.
Here is a labeled scenario. Imagine a commission-based real estate agent whose income clusters around closings. She pays interest only in lean months and makes a lump principal payment after each large commission. The loan behaves like a flexible line she controls, and the interest only payment is her floor. That works only if the lump payments actually happen.
- Map the last 12 months of income by month, not by year, so you can see the low points.
- Set a voluntary principal target, such as 25% of each commission over a threshold.
- Confirm in writing that the loan has no prepayment penalty and that extra principal is applied correctly.
- Treat the interest only payment as your fixed obligation and every principal payment as a bonus, not a plan.
The common mistake is counting on income spikes that do not arrive. A slow quarter then leaves you with a balance that has not moved and a recast date that has.
What to measure: principal paid voluntarily each year versus your plan. If you are consistently behind plan after the first year, you are effectively on a deferral and should revisit the structure before the recast.
4. Stress-Test the Reset
Payment shock is the jump in your monthly payment when the interest only period ends and principal repayment begins on a shorter remaining term. The recast is the formal recalculation that triggers it. Stress-testing means pricing that jump before you sign, under rates worse than you hope for.
Illustration: the $400,000 balance re-amortized over 20 years.
- At 6%: about $2,866 a month
- At 7%: about $3,101 a month
- At 8%: about $3,346 a month
Against the $2,333 interest only payment, the increase ranges from about $533 to more than $1,000 a month. On a fixed-rate interest only loan the rate may not change at recast, but the payment still rises because the term shortens. On an adjustable-rate version, the rate can also reset, which is where the second shock hides.
To run the test, calculate the three scenarios, put them in a small table of your own, and ask whether your budget handles the highest line with room left over.
The common mistake is ignoring the second reset on adjustable-rate versions: one adjustment when the interest only period ends and further adjustments after. Read the rate caps and adjustment schedule in the loan terms, not just the headline rate.
What to measure: the highest recast payment as a percent of gross income, and reserves in months of that payment. If the worst case needs a raise or a refinance to work, you are depending on both.
5. Compare Against Fixed and Adjustable Options
Comparing rates alone hides the real trade-off, which is how much equity you hold and how much you have paid in interest after a decade. The comparison below uses the same $400,000 example. It assumes 7% for the interest only and 30-year fixed, and an assumed 6.5% for the 15-year fixed, because shorter terms usually carry lower rates. All figures are illustrations, not quotes.
- Interest only (10-year period, 30-year term): payment about $2,333; balance after 10 years $400,000; interest paid about $280,000; qualification often at the amortizing payment; main risk is payment shock and zero principal reduction.
- 30-year fixed: payment about $2,661; balance after 10 years about $343,200; interest paid about $262,600; steady payment with predictable equity build; main risk is a higher monthly payment.
- 15-year fixed (assumed 6.5%): payment about $3,484; balance after 10 years about $178,100; interest paid about $196,000; fastest equity build; main risk is a payment that may strain DTI.
- Adjustable-rate: payment starts lower than a fixed loan at many price points; the balance depends on the amortization chosen; main risk is rate resets that depend on the index and caps in your note.
Ask a broker who can shop multiple programs to quote each structure on the same day, with the same assumptions, and confirm current rates as of the quote date. Duane Buziak compares options across many wholesale programs for clients statewide, which makes a fair side-by-side possible.
The common mistake is picking on rate alone. A lower rate on a loan that builds no equity can cost more over the hold period than a higher rate on a loan that pays down.
What to measure: total interest paid and principal balance after 10 years for each option, plus the monthly payment after any recast or adjustment.
6. Consider Florida Programs and Alternatives First
If the goal is a smaller payment or less cash to close, a program may solve the problem with far less balance risk. Terms change, so verify current details at floridahousing.org before relying on any of this.
- FL Assist: $10,000 at 0% interest, deferred, repaid when you sell, refinance, or pay off the first mortgage.
- FL HLP: $10,000 at 3%, amortizing over 15 years.
- Salute Our Soldiers: a Florida Housing option for eligible military and veterans; check eligibility and terms directly.
- VA financing: for eligible service members and veterans; review the basics at VA.gov.
- A rate buydown: paying points or using a temporary buydown to lower the early payments without deferring principal.
Income limits for these programs tie to area median income. Check yours against the HUD income limits dataset.
A three-variable breakeven shows how to test the trade. Suppose a DPA-linked first mortgage carries a 0.5% rate premium: $400,000 at 7.5% instead of 7% raises the 30-year payment from about $2,661 to about $2,797, roughly $136 a month. Divide the $10,000 assistance by $136 and you get about 74 months, or just over six years. If you expect to own the home for less than that, the DPA wins on these numbers; if longer, the premium costs more than the assistance gave you. The calculation ignores the cost of repaying the second lien, so add it in.
The common mistake is choosing a risky structure to cut the payment when a program would have closed the gap. What to measure: the breakeven year and cash to close under each option.
7. Write the Exit Plan Before Closing
An interest only loan is a bet on what you will do when the period ends, so the plan should exist on paper on day one. Sell, refinance, or pay down: pick one, with a date and a trigger. Here is a checklist that makes it concrete:
- A written principal schedule, even if the payments are voluntary.
- An annual loan-to-value (LTV) check against a current estimate of value.
- A credit check one year before the reset date.
- Reserves equal to several months of the fully amortized payment.
For the credit check, Duane Buziak uses NoTouch Credit Pull, a soft credit pull mortgage review. It reads your credit profile without a hard inquiry, so there is no credit hit from the review, unlike a standard pull that can lower your score. That makes a mortgage pre approval without hard pull possible while you are still comparing structures.
Also check the property itself. Look up the flood zone at msc.fema.gov, since flood requirements can alter insurance costs and the numbers you plan to refinance on. And plan for taxes realistically: the homestead exemption under Florida Statute 196.031 can reduce assessed value by up to $50,000, but it generally will not show up in your first year’s tax bill because you must own and occupy the home on January 1 and apply by March 1.
The common mistake is relying on a future refinance without checking equity, credit, and insurance. If values flatten and the balance has not moved, the refinance may not be available when you need it.
What to measure: LTV, credit score trend, and reserves against the exit date, reviewed every year.
Eight Questions Florida Borrowers Ask About Interest Only Loans
What are the main interest only mortgage pros and cons?
The pro is a lower payment during the interest only period; the cons are no principal reduction and a higher payment after recast. You also hold equity only through appreciation or voluntary payments.
Is an interest only mortgage worth it?
It can be for borrowers with uneven income or a planned exit date, and rarely for steady earners who want the lowest long-run cost. Run the recast math first.
What happens when the interest only period ends?
Your loan recasts: the payment is recalculated to repay the full balance over the remaining term, so it rises, often by hundreds of dollars a month.
Do I build equity with interest only payments?
Not from the payments. Equity grows only through home appreciation or principal you choose to pay.
Will the lower payment let me qualify for a bigger loan?
Usually not. Many programs qualify you at a fully amortizing payment, so ask how your specific program counts it.
Are interest only mortgages available in Florida?
Yes, typically as non-QM products, but availability, rates, and down payment requirements change often. Confirm current terms as of your quote date.
Does Florida having no income tax help me qualify?
It improves your take-home cash and budget cushion, but DTI is calculated on gross income, so it does not change the ratio itself.
Can I check my options without hurting my credit?
Yes. A soft pull mortgage broker can review your profile with no hard inquiry, so a no credit hit mortgage application conversation does not affect your score.
Where to Start Before You Apply
Start with the numbers. Run the payment math (strategy 1) and the recast stress test (strategy 4) before anything else, because they tell you quickly whether the structure is worth more time. Then confirm how you would be qualified and whether the structure suits your income (strategies 2 and 3). Last, compare alternatives and write the exit plan (strategies 5 through 7) before you apply.
Your dream home in Florida is closer than you think. Let’s turn your homeownership goals into reality with a personalized mortgage solution designed for your unique journey. Get your credit-safe consultation today and discover the loan options that fit your life, backed by trusted guidance every step of the way. A no credit hit mortgage application conversation with Florida Mortgage Maestro by Duane Buziak is the simplest first step.