Is my assumption right about IO loans?


If I do an interest only loan, but I pay down the principal from proceeds from the sale of another property, and continue to make the same payment, would it actually pay down the balance since the principal amount on which the interest is calculated is now lower?

I hope that’s a clear question but I don’t think it is.

Thanks for any responses.

Yes it would pay down the principal. However make sure you write two seperate checks…
One for the payment due…and another for the principal payment.
And then write in the memo section of the check…Principal payment only.
The reason for this is because if you have an escrow account and for some reason the escrow is short then they will take your principal payment and put it in your escrow account and not reduce your principal.
The other thing that you need to know is if there is any sort of pre payment penalty.

Thanks Ramona.

No prepay penalty on these loans, but thanks for the heads up.

Ramona is right. Make sure that any extra principal that you are paying towards your mortgage is on a separate check with a note in the memo section.

Keep track of this and check your account statement each time you do this to ensure that it was posted properly.

Yep, I learned that lesson the easy way (through a friend that learned the hard way) when the extra principal payment he thought he had been making for six months wasn’t actually going to principal b/c he was only writing one check.

took him a while to discover it b/c he wasn’t keeping a close enough eye on the monthly statements.


Also get the bank to accept bi-weekly payments then you are still paying the same amount every month but only paying interest for 2 weeks at a time! You will apply money to the principle every month by paying the same amount!