You can make extra payments on a fixed-interest loan, too!
I looked long & hard at the "interest only" loans when I bought my house last year. What I found was the following:
a) They are "interest only" for a time, then your payments are actually HIGHER when that time period goes up. This is nice if you expect a nice increase in pay in the fairly near future, because it allows you to buy more house NOW, then pay for it when you can afford it...but watch out! If you don't get that increase in income, you're stuck with the payments at the higher...and possibly unaffordable rate!
b) These loans are generally not fixed-rate, so when the interest rates go up, so do your payments.
c) You end up paying MORE for your home overall when using these loans. This is because of reason b) but even if the interest rate were fixed, the principle on the loan is not decreasing as it would with a conventional mortgage...therefore you pay more interest over the life of the loan.
d) You are not building up equity in the home as fast as you would under a conventional mortgage.
If all you're interested in is your payment for the first few years, and not building credit, then this may be a good idea. If you're going to sell the home within the "interest-free" portion of the loan, you might be better off sticking with a conventional mortgage (helps with down payments on subsequent homes).
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