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Many people think an interest only mortgage is the best mortgage, but is it really? Since interest only loans have a lower monthly payment than other loans, it appears to be the best mortgage loan available. However, interest only loans have a major drawback and should only be used in specific cases.
I must admit, I used an interest only loan. I did it knowing fully well what I was getting into. I paid the interest only on my house until my contracted job began to pay. I knew I was under contract and they would begin paying me in 3 months. I needed to move so I bought a home with an interest only mortgage. Then as soon as I started getting the new pay, I refinanced my home and got a standard mortgage. It worked well in my situation.
The problem with interest only loans is people generally don't have a way to pay off the house after the interest only loan ends. If you can't afford the capital and interest then an interest loan is not for you. Otherwise, at the end of the interest only loan you will have no way to pay off the capital. Then, you will be without a house.
Another important thing to consider is: if you do refinance the home at some point, you will still have the same amount of capital to finance. Meaning every payment you made up to that point was wasted. In my situation, I knew the money would be lost. I considered it like renting the house for a few months before buying. Still, all the interest I paid on the home was lost. After the three months, I had to get a loan for the same amount. The only difference was my payment was higher because I began paying off the capital.
An interest only mortgage may be the best mortgage for you but you need to go in with your eyes wide open. You don't want to get an interest only loan and then be shocked 20 years later when you paid off the interest but still owe the capital on your home.
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