Thumbs Down: Mortgage Warnings

Physician's Money Digest, November15 2003, Volume 10, Issue 21

Faced with rocketing home pricesand rising interest rates, homebuyersmay be tempted by the marketingpitch for so-called interest-onlymortgages. Instead of payinganything toward the principal loanamount, borrowers pay only the interestfor the first few years of theloan. But when you start paying offthe principal, there may be a steepincrease in your monthly paymentand, unless your home goes up invalue, you're not building any equity.If you plan to be in the house for onlya few years, an interest-only mortgagemay be a way to get more housethan you could afford with a traditionalmortgage. However, if youthink you'll be in the house longterm, you should approach an interest-only mortgage with caution.