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
Selling a house is expensive. If you can’t quite afford the home you need right now, and your income is expected to go up, and the interest is less than a rent payment, you can buy the house now, make bigger payments later, live in it longer, and still come out ahead.
It’s a very narrow use case, but a lot of people only deal in “what payment can I make each month?” If they can have something and pay for it forever, that’s better to them than not having it.
I’ve done interest only loans because I needed them for business growth. Anything to keep the payment low until income picked up. I used to build houses. I knew it was going to sell, but I needed money to finish it. The lower the payment the better. Once the house sold, it all got paid off at one.
I’d rather have an interest only mortgage, than 26+% credit card debt. You do what you need to do.
Sometimes people make stupid decisions though. Not everybody understands interest.
Planet Money, possibly The Indicator just did a podcast on car payments. Somebody put $50,000 down on a new $80,000 Escalade, made $30,000 in payments, and owed $75,000. Make that make sense.
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