Does interest-only mortgage make sense for you?

By Mitch Choboian
Tulare Advance Register

With so many mortgages out there these days, have you ever heard of paying "interest only?" It sounds pretty enticing at first, but consider whether this type of loan would benefit you.

Like traditional loans, the monthly interest payments are tax deductible -- but much lower than normal, because you're just paying interest. However, if you plan to stay most of your life in the home you purchase -- and you want to eventually eliminate your mortgage debt -- an "interest free" loan can be a real disadvantage.

All that principal you could have paid early on will have to paid at some point down the road, since most interest free loans convert to traditional mortgages (usually after 10 years or so). Your monthly payment will go way up at that point, too.

But what might happen if you sell your home in a few years? In many cases, your equity increases faster from the home's appreciation in value than it would from making principal payments. You might make only interest payments for a few years and still sell your home for a profit before the loan converts.

You'll find real estate agents are savvy about helping you determine an appropriate loan. An "interest free" mortgage may not be right for you, but ask the agent to explain your options and recommend a strong local lender for your needs.

Home Loans Articles, Mortgage Loans Articles, Financial News