Interest Only Home mortgages
Interest only home mortgages can be very tempting as they can lower your house payment significantly, but beware; interest only mortgages do have a down side.
Warning: Don't buy a house you can't afford.
Most people who purchase a home with an interest only loan do so because they can't afford the house with a regular loan. They need to lower the down payment by going interest only. In many cases they are buying a home they can't really afford. Do the math again. Make sure you can really afford this home. Expensive homes generally have higher taxes, higher insurance, higher utility bills, etc.
Warning: House prices do not always go up.
Warning number is two is that many people assume the house value will go up and when the home value goes up, then they will have some equity built into the home. BUT, what happens if the house value drops? Now you have a home you can't afford and, if you sell the house, you will owe the bank money. This is becoming a growing issue with many home owners and sellers as the housing market slows and many home owners were assuming that the housing market would increase forever. You can no longer count on the value of your home going up every year.
Warning: You aren't gaining equity
One thing that can make a home a good investment is the build up of equity. You build equity up over a long period of time and later, when retirement rolls around, you either own the home outright or at least have a good amount of equity in the home. This won't happen with a interest only loan.
There may be certain cases where a interest only home mortgage makes sense, but be careful. Don't just count on the advice of your real estate agent (they want to make the sale) and your mortgage broker (they want the sale as well). Even if these people are your friends, they may not be able to look at this objectively. Talk the loan over with your financial advisor or some other finance professional to get some objective advice on what type of loan is best for you.
Note: always consult your professional financial advisor or realtor. The advice on this page is just opinion and you should consult a professional before making any financial or home buying decisions.
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