Jul 30, 2021

An Interest Only Mortgage Can Be A Great Option

Most people don't realize that during the first 30 years of a fully amortized mortgage, very little money is actually going to pay off the principal.  During the first 10 years, most of the payment is interest only, however, the payment is higher than would otherwise be the case if it was actually an interest only loan.  So for some people living in real estate markets where homes tend to appreciate, it might make more sense just to get an interest only loan to get the lowest payment possible to invest the money in the stock market, 401K's or other investments, or perhaps to pay for things like child care.  If the home appreciates at just 3% a year, the homeowner will be growing equity in the home anyway even though nothing is going to pay off the principal. 

Certainly for people who will only be in the home for 10 years or less, for whatever reason, an interest only loan could make perfect sense provided homes in the area tend to go up in value over time.   Yes, you will owe the original loan amount whenever you sell, but if the home goes up in value, you paid a much lower payment for the time period allowing you to grow savings elsewhere or to cover other family needed expenses. 

Consult a good accountant to see what might be best for you based on your personal circumstances.  In many instances an interest only mortgage loan could be cheaper than paying rent.  If that is the case, home ownership is always the best option.