What type of mortgage?
October 4, 2005 8:16 PM Subscribe
Interest only or fully-amortized mortgage? [much more inside]
posted by kdern to work & money (10 answers total)
I need help deciding on a mortgage. It's my first house, I'm 34 and single, and I plan to stay in this house for only 3-5 years. I currently pay $700 in rent in an apartment. The house is in University City, St. Louis, MO. I close on Dec. 1.
If I get an 5 year interest only mortgage (30 year adjustable, 5 year ARM, 80/10/10), my monthly payments will be about $1120 per month. If I get a fully amortized, monthly payments will be about $150 higher.
On one hand, the payments are already a little high for me, and I'm spending most of my savings to be able to put 10% down. There's no prepayment penalties on the interest only loans, so when I have the money available, I could send in extra money to help pay down the principal. I'm not great at living on a tight budget, so the interest only loan would give me the lowest payments AND the flexibility to pay more later if I'm able to.
On the other hand, I may not have the discipline to send in extra cash, which means that when I sell the house, I will have $12,000-15,000 less cash than I would have with a fully amortized loan. My goal in buying this house now is to use it as a starter home. I'm hoping the home will appreciate each year and I will have equity after resale to put towards a better house.
What do you all think I should do? Let me know if you need more information.