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
It’s essentially like rent, but any increase in property value belongs to you. Of course, if the house goes down in value, you either have to be able to pay to sell it, or you’re stuck there. With a traditional mortgage, even if the home price stayed level, you’d accrue equity over time, here you don’t.
If the home price goes up a lot and you move within a couple years, you’ve come out ahead. If the home price only goes up a little, or you’re there for many years, it’s probably not that great. If the home price goes down and/or you can’t move for whatever reason, it’s bad. But, so long as you can service the mortgage, you won’t be homeless. If it’s variable rate, then you could eventually wind up with a *more* expensive mortgage than if you had gotten a traditional mortgage in the first place.
So, it’s a risk, but there are certain situations it could work out.
Latest Answers