Interest-Only Mortgage: Is it Good for You?

The advantage of Interest-only mortgages is that it offers lower payments
and more purchasing power. But depending on the mind-set of you and
your wife, that could be a trap. You may not avoid the temptation of
going for a more luxurious home with the ready availability of more
purchasing power and thus may land yourself among more liabilities under
some bad situations.

You need to judge what is good for you. Never forget the important fact
that you will eventually have to pay back the principal to the bank.

One of the main reasons people wish to own a home is to build equity, and
you do not do that with an "interest-only" mortgage. If you’re living in a
part of the country (like Los Angeles, Boston, NY ...) where real estate
prices are usually hot and go hotter, you’ll likely build some equity from
that rising value even if you have interest-only mortgage.

But what if the so-called housing bubble bursts? Instead of an equity, you'll
accumulate more and more liability if the market starts sliding.
Interest-only loan will throw you in a soup in that case especially if you
need to move or sell the house for some other reason.

In a normal situation, in most of the country, the home value increases
rather slowly. Even four or five years may not turn out to be a long time to
gain suifficient appreciation for your home. In such 'cold' real estate
markets where things do not move sharply up or down, your strategy may
be different. So, if you move quite often among such areas and so need to
sell home frequently, you may go for the 'interest-only' loan.