First National Financial LP is offering a Canada Mortgage and Housing Corporation-insured interest-only mortgage. The firm describes it as new mortgage concept that can help qualified homebuyers lower their monthly mortgage payments and improve their monthly cash-flow flexibility.

The interest-only mortgage gives qualified homebuyers the option of paying interest only for the first five or 10 years of their mortgage. Following the interest-only period, payments will be adjusted to allow for principal and interest payments. Homebuyers must still qualify for a mortgage based on the ability to support monthly principal and interest payments amortized over a period of up to 25 years.

“This new mortgage will appeal to two different groups: qualified first-time buyers and existing homeowners who want to reduce their monthly payment for a period of time,” says Scott McKenzie, vice president of residential mortgages at First National.

For example, the monthly payment for a traditional five-year fixed mortgage of $175,000 at today’s rate (5.3%) is approximately $1,050. With an interest-only mortgage, the payment would be $765. That’s a net difference of $285 per month, or $3,420 per year.

“That extra money can be used to perhaps accommodate RRSP contributions, other investment opportunities, tuition fees or home renovations,” McKenzie added.

Qualified borrowers can get an interest-only mortgage for up to 90% of their home’s purchase price. Clients have the option of using their prepayment privileges to make principal payments. They also have the option of switching to a principal and interest payment before their five- or 10-year conversion date.

“The Interest-Only Mortgage option is one of CMHC’s innovative financial solutions that will offer more flexibility to Canadians,” said Pierre Serré, vice president of product and business development at CMHC.

CMHC announced the interest-only feature on June 28, 2006 along with other mortgage insurance product enhancements designed to offer more flexibility to future and current Canadian homeowners.