Thanks to CleverDude's post Against the grain: Why we chose an interest only mortgage, I decided I would share my deep, dark, secret....I too have an Interest Only Mortgage. I too chose a 5/1 ARM and financed 100% of my home. Before you start throwing rocks at me, here are some of the reasons I took out an Interest Only Mortgage:

  • I pay more than the Interest Only payment. I found a good reliable mortgage calculator and determined what the amortized payment would be if I had a fixed loan. I make sure to pay at least that amount of the principal every month. I've had the loan for about a year and a half and I have paid principal each month. If there is a lean month where I can only pay Interest Only, I have that option. So far, that hasn't been a problem.
  • I do not plan to live in this house more than 5 years. I made sure there was no prepayment penalty on my loan so I could refinance or sell before the loan resets to a higher interest rate.
  • I wanted to keep my cash for other uses. My other debt at the time I bought this home was at a higher interest rate than what I would be paying on my mortgage so I wanted to use that to pay down the high rate debt. I paid off all the high interest rate debt. Besides my car loan, everything is less than 5.5%.
  • I knew what I was getting into. I understood that my rate would most likely increase after the first 5 years. I knew that if I made Interest Only payments, I would owe the same amount in 5 yrs as I owed when I initially took out the mortgage. I knew that I took the risk of being upside down in my home if values fell.

This is my second home that I have purchased. On my first home, that is now a rental property, I knew I would keep the home for more than 5 years as either my primary home or a rental due to the close location to a large college. For that loan, I chose a 30 year fixed loan at 5.875%.

There you have it, my conscience is clear now. Proceed with your comments.


5 comments

  1. Clever Dude // August 21, 2007 at 12:17 AM  

    Congratulations on getting that out! Everyone is always hyping up 30 year loans, but why get that loan if you don't need it?

    Good luck on the refi or sale, whichever route you take.

  2. SingleGuyMoney // August 21, 2007 at 7:43 AM  

    Thanks Clever Dude.

  3. Moneymonk // August 22, 2007 at 1:49 PM  

    The purpose of these loans is because everyone has different needs.

    You do not have to confess

  4. Rocky // August 24, 2007 at 4:19 PM  

    I guess you will have more tax write off w/ just interest payments. Now what happens if you can't sell or refinance the house after 5 yrs? Do you have a backup plan for that?

  5. SingleGuyMoney // August 24, 2007 at 8:53 PM  

    Rocky - That is a good question. My plan is to make the decision to either refinance or sell early enough so that I have options. If I am not able to sell, I will have to make sure I have the extra money to cover the higher payments. My mortgage lender offers a streamline refinance option.