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
Interest only mortgages were intended for developers and people doing housing renovations to flip the house. Basically you’re trying to minimize how much cash you tie up in the property because you’re using that cash to improve the property. In theory, you sell it before this becomes an issue.
There’s nothing binding them to just that use case, and so people started making stupid choices. But that was their original purpose.
Some people may find well thought out situations where they make sense(e.g. if rates are low, lock in the rate now even if you can’t afford to cover the principal as well) but those are very specific situations and should only be done by people who actually know what they’re doing, not by people who just read a blog about it on the internet.
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