A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Friday, June 17, 2005

The True Cost of an Interest-Only Mortgage

Yesterday I compared 15, 30 and 40-year mortgages. Today I wanted to look at some numbers regarding interest-only (I/O)mortgages. Yesterday's Wall Street Journal had an article about I/Os. I put a table together using the numbers laid out in the article.

Amount Financed


Loan Term (Years)


Interest-Only Period (Years)


Interest Rate


Initial Interest-Only Payement


Payment After Interest-Only Period


Interest Paid During I/O Period


Interest Paid After I/O Period


Total Interest Paid


Based on this example, this person would pay nearly $29,000 more in interest using the I/O loan than they would had they used a traditional 30-year fixed loan. I/O loans should ONLY be considered by those who can afford the payment after the I/O period. Unfortunately, I don't think that's the case with most of the people using I/O mortgages.

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