From what I understand about mortgages, which isn’t a lot at all, I just don’t see any scenario where an interest only mortgage is a good idea.
You pay it off for let’s say 20 years and you still have the full balance remaining. What am I missing?
In: Economics
One of the scenario’s is when you expect a bunch of free cash in some future. A few examples:
Eg you are selling your house but need more time to sell when you have already closed on your new one. A loan of x years gives you a full year of ease of mind; you only have to talk to the bank again when that period is almost over; but until then you can take your time to sell your old home. As soon as you have the cash of the sale, you pay back the loan.
The example of /u/jeo123 of property developers is similar; and if they have multiple properties, then they can pay off the loan by selling another property instead. They could prefer to sell a property in a neighbourhoud which is popular, and wait for the newly bought one to increase in popularity.
If you have assets which are tied to a deadline like stock(options) you cannot trade for X years or bonds which are under pari and you need to wait for them to reach maturity. Or if you expect to retire in 10 years and sell your company; then you can take out a loan of 15 years (to give you some margin) to already buy the place where you will retire.
As per the other comments, if the other assets increase in value, you gain extra; if they depreciate you lose out some.
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