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	$200,000
Loan Term (Years)	30
Interest-Only Period (Years)	15
Interest Rate	5.50%
Initial Interest-Only Payement	$917
Payment After Interest-Only Period	$1,634
Interest Paid During I/O Period	$143,384
Interest Paid After I/O Period	$94,150
Total Interest Paid	$237,534

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.

Tags: Comparing Mortgages, Interest-Only Mortgages, Understanding Interest-Only Mortgages