More on Interest-Only Mortgages
The first article written by Jack Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania, is an excellent article discussing what interest-only loans are why most people should avoid them. Throughout the article, he offers several tips that include some of the following:
- Tip: Ask yourself whether you are disciplined enough to make the payment to principal when you aren't obligated to.
- Tip: On some IOs, the payment doesn't adjust for a year, and on others it doesn't adjust until the end of the interest-only period. ASK!
- Tip: Ask yourself whether you are comfortable with the risk that the expected higher income won't materialize.
- If you don't need an interest-only mortgage to qualify for the house you want to buy, it is not the best choice.
And the most important tip:
The second article is written by Liz Pullman Weston, a frequent contributor on the MSN Money site. Although is far from encouraging the use of interest-only mortgages, she does say that you can consider one if:
- If you’re a disciplined investor, good with money, a bit of a risk-taker and not buying more house than you can handle, an interest-only mortgage could work for you.
- If you’re not all of those things, you probably want to stick to a more plain-vanilla mortgage.
I think this is very wise advice.
Tags: Interest-Only Mortgages, Mortgage Comparisons