Choosing libor index as basis for your interest-only mortgage rates entitles you to a number of benefits. Below is a short list of these interest-only mortgage rate benefits. Benefits of Interest-Only Mortgage Rates Interest-only mortgage rates allow you greater purchasing power. Because interest-only mortgage rates have lower costs compared to fixed rates or other types of loans, you are afforded extra money which would have been spent on high monthly payments. The current mortgage interest rate that you are charged right now is something that your banker or broker cannot control. Often, loans with unattractive mortgage interest rates are sold to FannieMae or FreddieMac which in turn, sell these loans to the secondary market. Mortgage investors purchase these secondary market loans with mortgage interest rates that are undesirable to the regular homebuyer. If interest rates rise to the point that the interest due cannot be covered by your monthly amortization mortgage payment, the unpaid amount will be added into the loan balance, increasing it over time. For instance, the payment cap of your amortization mortgage is 7.5%. With a monthly amortization mortgage payment of $1,000 and rising interest rates, your new payment would normally be $1200/month. Not surprisingly, one of these factors that affect the movement of bank rate mortgages is you - the consumer. Bank mortgage rate money come from any number of sources. Bank mortgage rate money may come from deposits at banks and brokerages. Most bank mortgage rate money comes from investors who comprise the collective term, "capital markets. The savvy investor can make it so that his investment using the money he gets from the per month difference growth of an interest-only mortgage can increase within a short period, thus leveraging incomes to build assets. This is partly the reason why interest-only mortgages are still preferred by big-time investors. The same goes for closing costs, which are fees that the lender must pay. Higher closing costs paid to them means lower mortgage rates. However, if you do not wish to pay for all the closing costs upfront, the lender will raise your mortgage rate in order to cover it. The concept is pretty simple. Lenders are usually willing to lower mortgage rates as long as more money is paid upfront.