Interest only mortgage – Advantages/Disadvantages?
The first reaction everyone has is no way, don’t do it. But, I’m going to be putting 20% down on the mortgage so I’ll already have equity in the property. My area is lucky in that home prices have only slipped maybe 1 – 2% in the past 6 months and are remaining steady if not increasing slightly. So appreciation will still be there since I’m figuring on being in the home 5 – 8 years. I’ll have the ability to control when and how much ‘extra’ I’d like to pay per month towards principal so I’ll still be building additional equity on top of the initial 20%. No prepayment penalty so I can refi anytime. And extra money saved on monthly payments can go towards home improvements which will increase the home’s value.
Just trying to research if there should be any reason why I would not go this route. Anyone who understands amortization of loans knows that you’re not putting that much towards principal anyway in the first few years of a 30 year mortgage.
Since some things are taken too literally: Of course home improvements never return a full 100% or anything near that, depending on what you’re doing. In my specific area there are improvements that can be made to properties that will increase the value (probably not 100% return) and also increase the demand for the property when it comes time to sell. The property that I’m planning on purchasing does not have this ‘add-on’ so that it what makes it currently less desirable and the payment flexibility will allow me to make these additions.