Interest-Only Mortgage Lending Isn’t Gone, It’s Alive and Well

interest only

One of the biggest things the QM rule did was eliminate interest-only mortgages from the mainstream.

Sure, it didn’t make them illegal to originate, but it did make them less desirable to originate from a lender’s perspective because they aren’t protected by the Qualified Mortgage rule.

Instead, they are considered non-QM loans, meaning only a handful of lenders still offer them.

However, it appears that lenders still have an appetite for mortgages where borrowers merely need to make the interest-only payment.

A new tally from Inside Nonconforming Markets, part of Inside Mortgage Finance, found that interest-only mortgage lending was up 8.5% in 2015 from a year earlier.

The numbers are based on volume from 12 lenders tracked by the company, which I assume are the biggest interest-only mortgage lenders still around.

Despite the QM rule in place, the group was able to originate $29.56 billion in interest-only mortgages during the year.

Obviously it’s a far cry from the good old days, but it’s still a respectable amount, and on an upward trajectory.

However, the group was only able to muster $6.88 billion in IO production during in the fourth quarter of 2015, a 6.6% decline compared to the previous quarter. It’s unclear if it was just a seasonal decline and we’re still awaiting first quarter 2016 results.

PHH Mortgage the Top Interest-Only Mortgage Lender

If you’re wondering who the king of IO is, it’s PHH Mortgage, which reported total volume of $13.64 billion in 2015.

IMF pointed out that PHH originates interest-only mortgages for “a number of clients,” and I believe that includes Merrill Lynch, which just announced it was taking its origination business in-house.

That could greatly effect PHH’s loan volume, assuming Merrill offers IO loans to its clients directly going forward. And my guess is a lot of high net-worth clients favor IO loans so they can put their money to work elsewhere.

Regardless, interest-only loans are still widely available, though underwriting standards are tougher than they used to be, and it may help to have an existing relationship with a wealth management company like Merrill Lynch.

Inside Mortgage Finance noted that interest-only loans “appear to be the most common type of non-QM” offered by lenders.

Check out my list of lenders that still offer interest-only mortgages.


  1. Do you know who is actually buying the interest only loans? Who is buying the closed and funded loans from JMAC, PHH and Cal Fed

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