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
This can make sense if you’re buying a house primarily as an investment, and you don’t plan to own it very long. You are betting that housing prices will rise rapidly, and you may be planning on being able to add lots of value to the home via affordable renovations (house flipping).
For example, if you expect the price of the home to rise by 10-20% over a year or two, and your interest rate is only 3% (assuming you have a time machine), the savings on payments will make up for the fact that you aren’t paying down the principal (assuming your prediction pans out).
The lower payments could also enable you to speculate on multiple homes at the same time. This increases your exposure to risk, but also multiplies your potential profit.
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