Question: >A friends was telling me about how he lowered his monthly mortgage >payment ( debt consolidation ) by refinancing their mortgage with a >5-year interest only mortgage.
>He didn’t see himself in the house for more than five years and sold >on the idea that an interest only mortgage was the way to go.
>I’m gathering facts, stats, and news about this topic for my Web >site… any thoughts (good or bad) or stories about an interest only >mortgage you can share
Answer: Lower payments are not everything. Consider that your friend will not be payin g down principle and therefore will not be building up equity. Granted, there won’t be much equity built up from priciple payments in the first few years. But anyone who is planing to own a house for a longer term will want to be paying down principle.
Another way to lower payments would be to look into an ARM with a five year lock. ARMs tend to have lower intrest rates and corosponding lower payments. The five year lock will fix the intrest rate for the first five years of the loan.
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Well, houses cost more these days, but interest rates are a lot lower. I suppose you could save a hundred bucks or so on a $100,000 loan by not paying any principle. But you’re gambling that at the end of five years you’ll be able to either refinance or sell for enough to pay off the loan, and unlike with a conventional mortgage, you’ll have no choice, that five year term will force you to do one or the other whether it’s to your advantage or not
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