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 are for when your plan is to not live in a house for very long, and you also expect the house will greatly increase in value during that short time. (I think these were especially popular in the early 2000s.) I had a colleague who bought a townhouse for $200,000. He planned to live there for only a few years and then sell it for $300,000. His profit would be $100,000 minus what he paid in interest on the mortgage. His opinion was that an interest-only mortgage was a no-brainer.
Of course, the risk is that if you end up living in the house for a long time, or, if the house doesn’t increase in value, then an interest-only mortgage is a terrible idea. I would never take that risk, personally, and I don’t know how it ended up working out for my colleague.
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