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.