If you are buying a home and you only plan to stay in the home for 10 years or less, an interest only loan may make sense for you. The reason is that very little of a monthly payment actually goes to pay down principal in the first ten years of the loan. So, if you implement a fully amortized loan, you will be paying a higher payment each month and find that after 10 years, you owe pretty much what you borrowed 10 years earlier.
Right now, you can lock in a 10 year interest only mortgage loan for 3% to 3.5% depending on the amount and your credit score. If you stay in your home beyond 10 years, the loan will convert to a fully amortized loan; but based on then current interest rate. In the mean time, you will make a very low payment for ten years. If you have some discipline, you can invest the money you save in a mutual fund and maybe end up better off at the end of ten years.
Do a comparison to see where you come out. And, a good loan officer can help you select the right mortgage for your circumstances. Don't be afraid of interest only mortgages if you know you will not be in the home longer than 10 years.
At Paragon Home Resources we work with families to sell and buy homes all over the country. Our Home Resource Coordinators can help you sort through your options to do what is best for you and your family.
